Take The Deal

Keith Hennessey, who worked on economic policy in George W. Bush's White House, supports the tax compromise:

Unlike many Congressional Republicans, I support extending extended unemployment insurance benefits when the unemployment rate is this high.  My back-of-the-envelope suggests that, at a 9.8% rate, between four and nine people who would like a job but cannot find one are getting more generous UI benefits for each person who is getting those same benefits and choosing not to take a job.  I’m OK with that ratio.

If I could make two changes to the bill, I’d pay for the increased spending on unemployment insurance with spending cuts in the outyears, and I’d drop the accounting gimmick that doesn’t lower future Social Security obligations to account for the lower payroll tax revenues.

If I could make a third change, I’d drop the business expensing.  This provision is a timing shift – it will cause firms to accelerate their medium-to-long-term investment spending into 2011.  That’s good for 2011 growth but bad for 2013 and 2014 growth.  Since I accept the consensus predictions that we’re in a multi-year slow recovery, that’s not a constructive change.  There are times when this makes sense.  I don’t think this is one of them, but I’m open to opposing arguments.