President Barack Obama recently announced a $700 billion tax deal meant to put money back in Americans’ pockets and to hopefully stimulate the economy. Though it is undisputed that this will give Americans hundreds of dollars back and prevent the removal of existing tax cuts, NPR’s Planet Money turned to the Congressional Budget Office’s January report to assess how much of an economic boost the deal would offer.
There are three key facet’s to the new plan the first of which is an extension of unemployment benefits. This measure accounts for a mere $56 of the $700 billion but should have the greatest pay off for the economy. Why? Because those who receive unemployment benefits tend to, out of necessity, spend what they receive immediately. And consumer spending, as you’ve probably heard on the news, is the key to fiscal stimulation.
The second part is to reduce the federal payroll tax from 6.2% to 4.2% and will consequently give money back to every taxpayer in America. This measure may seem to be the most popular as it benefits everyone rather than any particular sect, but isn’t the most effective. Unlike the previously listed measure, the $120 billion invested in this one will not for the most part return to the market as constituents are equally likely to use the money to pay debts or save the money.
The last and most significant ($500 billion), of the primary aspects of the deal is the extension of Bush tax cuts. This piece justly extends tax cuts to the entire populace but in the name of equality, applies to the wealthy as well. The result; $120 billion of the entire $700 billion deal result from highly inefficient cuts for high earning individuals who already experience few of the inhibiting effects of the recession. Thus, this substantial portion of the entire plan is also the least useful by CBO measure.
These are the major parts to the Obama Tax Deal and though it will undoubtedly offer a boost, we have yet to know if it justifies the $700 billion price tag.
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