Does Obama intend to capitulate to Republican tax cut loons?

It currently looks that way, according to a Wall Street Journal report (the link comes via a fine analysis of the tax cut proposal in Naked Capitalism, but also see this, this, this, this, this and this). According to the Journal article:

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses, a move aimed at attracting Republican support for an economic-stimulus package and prodding companies to create jobs.

The size of the proposed tax cuts — which would account for about 40% of a stimulus package that could reach $775 billion over two years — is greater than many on both sides of the aisle in Congress had anticipated. It may make it easier to win over Republicans who have stressed that any initiative should rely more heavily on tax cuts rather than spending.

Why would a rational person prefer government spending to tax cuts? A few reasons:

  • The forsaken taxes that will thus remain in the hands of consumers and businesses may not be spent immediately on consumer goods or capital stock but used instead to pay down debt, saved for a rainy day, etc. This usage would dampen the stimulus effect produced by the stimulus program.
  • Compelling social needs exist which federal government spending can best address, needs, incidentally, that were directly or indirectly caused by the practical use made of the market fundamentalist creed over the past thirty years (on which, see this). These needs include infrastructure creation and repair, deeply underfunded medical, educational and welfare programs that successfully address primary human needs, etc.
  • Government spending provides a better and bigger bang for the buck, so to speak, than tax cuts meant to increase private spending.
  • The aid some states will need to remain solvent during the crisis.

A tax cut might have appeared to be a wise political gambit to Obama and his inner circle, although the ultimate success of this indulgence in real political manipulation is doubtful. I say this because the tax cut proposal recently floated in the press is sizing up to be a waste of money and a likely-to-fail attempt to co-opt Congressional Republicans and the noise machine which provides the GOP with ideological coverage. Building a bi-partisan consensus around a policy error is not the path the country needs to take, I would suspect.

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