Unemployment may continue to rise despite the tax plan.
Economic recovery is happening according to President Obama and the Democrats; that was a year ago. A wrong assumption they are attempting to correct by extending the Bush tax cuts to the dismay of fellow Democrats. As Obama traded cuts on taxes, the Republicans supported this by agreeing to extend benefits for the unemployed, decrease taxes on both business and wage and extend tax credits for college tuition and more.
The arrangement shifts White House focus from last year’s long term goal projects including revamp on health care and financial regulation to short-term job creation. Congressional Democrats met this with mixed caution and anger stating Obama should have put-up a fight. With limited choices however if both Democrats and Republicans stood their grounds, the economy will take the entire blow, proving very bad for the current party at the White House.
The deal pleased economists and Democratic policy. Bigger growth and job gains estimates were forecasted in the coming two years. Robert Greenstein, Lawrence Mishel and John Podesta who all run Washington research groups praised the deal. Around $120 billion of the estimated over $900 billion cost over two years will cover the high-end and estate tax cuts. While $450 billion is allotted to cover the president’s wish list and $360 covers tax cut extensions favored by both parties.
The risks persist for the Democrats and the economy as aftershocks are common. Unemployment may continue to rise. Economists believe no amount of motivation package is about to make the economy healthier almost immediately.
Ideally, a better and bigger package than the present is likely to do it. The $120 billion payroll tax cut is seen to only affect the part paid by workers not companies. This is likely to soften the blow for the workers because they can save a part of the money. The cut on the employers’ portion finances employment.
Politics however stopped the best on payroll tax cuts from happening. Republicans and Democrats did have a compromise to help the economy but not that much. Economists said early estimates on the reduction of the unemployment rate by a half percentage are seen to become a full one percent next year. But if all tax cuts were allowed, decline could be upped by 1.5% by the end of 2012. However, with the expiration of the present package and the two parties battle again as they can’t allow all tax cuts to expire, unemployment is still about 8% by the end of 2012.
A fully recovered economy will help Obama’s reelection allowing him to threaten and refuse tax cuts for the rich. Economists though, points that additional spending today has to be paired with future deficit reduction. If not, long term deficit will persist and may make investors wary. Raising the deficit is easier than cutting it; whether through high-end tax cuts or under a new motivation program.
