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Krugman: Scrap the Stimulus Tax Cuts

Democrats and many economists were none too happy last week when President-elect Barack Obama’s transition team announced plans to include $300 billion in tax cuts as part of its economic stimulus blueprint — and the number of critics just keeps growing.

In his column in The New York Times today, Princeton economist and recent Nobel Laureate Paul Krugman advises that the tax-cut proposal should be the first thing to go:

Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.

Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?

Still, not everyone has been critical. In an interview on CBS this morning, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said that some tax cuts will bring “balance” to the stimulus package, adding that “the president-elect has it about right.” From the interview:

Let me also suggest that there are stimulative effects of tax cuts. They’re not purely just give-aways. And so some balance of this, probably, is necessary. And whether or not you have it exactly right, I suppose each one of us might write it a bit differently, but the fact that there are some tax cuts in here, I think, are probably going to be necessary and probably the right step to be taking.

I’d like to see a bit more of the infrastructure than we have in this bill, but that’s just one person’s opinion. Overall, I think the president-elect has it about right.

Are we seeing the opening rounds of a Democratic showdown in the Senate? Stay tuned…

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