It's a tough time to be a progressive. First, Democrats get slaughtered in midterm elections. Now the Obama administration is poised to cave on its promise to allow the Bush tax expire for those who earn more than $250,000 per year. Some angered by word of a pending compromise on extending the tax cuts for all have begun talking about all the amazing things the government could do with that money. After all $60 billion per year isn't peanuts. But such imaginings are just mere dreams. The political reality is that extending the tax cuts is the government's only shot at additional fiscal stimulus, whether ideal or not.
The New York Times' David Leonhardt provides a list of some of the wondrous things that $60 billion can buy. Here are a few standouts:
- Universal preschool for 3- and 4-year-olds, with relatively small class sizes.
- A national infrastructure program to repair and upgrade roads, bridges, mass transit, water systems and levees.
- Twice as much money for clean-energy research as suggested by a recent bipartisan plan.
Beyond this, you can think up lots of additional stimulus measures that could be taken with $60 billion. But all you can do is imagine. Neither this Congress nor the next one will pass another stimulus package. There's little political will in Washington to spend more money to speed up the recovery. It doesn't matter your party of choice -- this is just the reality that must be accepted.
So then the real question at hand is this: should we temporarily extend the Bush tax cuts to relatively wealthy Americans and increase the deficit by $60 billion per year or end them and shrink the deficit by that amount? If the tax cuts are extended, then at least there's a reasonable chance that these people will spend some of that and invest most of the rest, which will help an economy aching for spending and investment. But if the cuts aren't extended that potential stimulus simply disappears -- it won't be spent by anyone.
Now surely, it would be lovely to see the deficit shrink by $60 billion per year, but despite the cries of budget hawks, the U.S. isn't in a fiscal crisis. The market continues to affirm the strength of the dollar and allows Treasuries to be issued very cheaply. That isn't likely to change in the near-term. Indeed, progressives are often the very ones arguing that the deficit isn't as serious a problem right now as unemployment and the lethargic recovery. So why not endure a slightly wider deficit and hope allowing this additional money to stay in the economy helps?
Like them or not, the Bush tax cuts are the only realistic shot Washington has at providing any fiscal stimulus for at least the next two years. It's time to be practical about that fact and stop worrying about all the other stuff you could do with the billions they cost. In this political climate, you can't buy anything else with that money anyway.