Zandi Supports ‘Balance’ of Spending, Tax Cuts in Dems’ Stimulus Plan

Wednesday, January 21, 2009 at 5:28 pm

There has been much debate on the effectiveness of the Democrats’ proposed $825 billion stimulus strategy, and today party leaders found another prominent supporter.

Mark Zandi, the head economist at Moody’s and a seemingly omnipresent witness at Capitol Hill proceedings, released a report today indicating that the Democrats’ plan “will not reverse the current recession, but it will provide a vital boost to the flagging economy.”

From the report:

With the stimulus, there will be 4 million more jobs and the jobless rate will be more than 2 percentage points lower by the end of 2010 than without any fiscal stimulus. Without stimulus, unemployment will rise well into the double digits by this time next year, and the economy will not return to full employment until 2014.

Zandi also supports the proposed tax cuts, which have been criticized by some as a strange way to boost the economy, given that folks likely won’t spend all of that cash. His explanation:

The mix of tax cuts and spending increases in the stimulus package is designed to provide both quick relief and a substantial boost to the struggling economy. The tax cuts will not pack a big economic punch, as some of the money will be saved and some used to repay debt, but they can be implemented quickly. Aid to state and local governments will not lift the economy, but it will forestall cuts in programs and payrolls that many governments would be forced to make to meet their states’ constitutional obligations to balance their budgets. Infrastructure spending will not help the economy quickly, as it will take time to get even “shovel-ready” projects going, but it will provide a significant economic boost. Because the economy’s problems are not expected to abate soon, this spending will be especially helpful this time next year.

Translation: Get ready for a long recovery.


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