How Not to Stimulate the Economy

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The Wall Street Journal reports that there’s been a sudden outbreak of Christmas cheer on Capitol Hill, and the chances of a government shutdown on Friday are now almost nil. There’s also — maybe — been an outbreak of remarkable good sense. The biggest obstacle in the way of a deal has been figuring out how to offset the cost of an extension of the payroll tax cut, and the Journal reports that several new possibilities are now under consideration, including this one:

Another option is for the measure to be only partly offset by revenues or spending cuts elsewhere—an approach that Democrats and the White House have said they could support.

Well huzzah. The whole point of the payroll tax cut is that it’s supposed to be a short-term economic stimulus, and the best way to accomplish that is not to pay for it at all. If you cut taxes one place and raise them another, that doesn’t have much net effect. Likewise, if you give people more money to spend but then offset it with less government spending, that doesn’t have much net effect either. If you want to stimulate the economy via fiscal policy, the best way to do it is via straight-up deficit spending.

Unfortunately, the Journal says that lawmakers are only considering a plan to “partly” offset the payroll tax cut with other revenues or spending cuts. Too bad. That’s better than nothing, but better still would be to forget about offsetting it at all and just pass the damn thing.

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