Democrats, Bush Reach Deal on Tax Rebates
Democratic and Republican congressional leaders reached a tentative deal Thursday on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy. [..]Paul Krugman:
Pelosi, D-Calif., agreed to drop increases in food stamp and unemployment benefits during a Wednesday meeting in exchange for gaining rebates of at least $300 for almost everyone earning a paycheck, including low-income earners who make too little to pay income taxes.
Families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200, according to a senior House aide who outlined the deal on condition of anonymity in advance of formal adoption of the whole package. Rebates would go to people earning below a certain income cap, likely individuals earning $75,000 or less and couples with incomes of $150,000 or less.
If this description is correct, the stimulus bill will be a real disappointment. As I pointed out in an earlier post, economic theory — Milton Friedman’s theory! — suggests that if we want stimulus funds spent, they should go to people in temporary economic difficulty who are likely to be liquidity-constrained. But it appears that most of the measures that would do that — benefits to the unemployed, food stamps, aid to state and local governments — are being bargained away. Even the tax credit is apparently not fully refundable, so those who need it most, and are most likely to spend it, won’t get the full amount.
You can blame the Bush administration, whose hostility to helping those in need is now getting in the way of good economic policy. But I’m also disappointed with the Democratic leadership, for not standing up more forcefully.