WHAT WOULD KENNEDY AND REAGAN DO? I have chosen this caption because it is a tragedy that neither political party is giving enough importance to the unemployment crisis. This is especially ironic because two major examples of successful fiscal policy are the Kennedy tax cuts in the early sixties and the Reagan tax cuts in the early eighties. One icon from each party. And yet neither party is embracing their examples.
I agree with Krugman and deLong that expenditures would be much more effective than tax cuts right now. Fortunately state and local governments have been neglecting maintenance for decades, so the money would hardly be wasted. And federal expenditures to bring state and local services back to the level that were recently thought necessary wouldn’t be wasted either.
As an example of kinds of stimulus, Roger Altman in today’s Financial times suggests extending the three stimulus measures from last winter for another year. They were cutting payroll taxes for employees, accelerated depreciation and extending the period for unemployment insurance. He also would delay the start of any deficit reduction measures. There are lots of other ways to do it, once the goal is chosen.
Referenced in: KENNEDY AND AND REAGAN AND EXPANSION (COMMENT).
Whose taxes would you cut? New Republican governors in Ohio, Michigan, and Wisconsin are cutting taxes on businesses while reducing expenditure on local governments and education. Federal income tax rates are already substantially lower than in the Reagan era, to say nothing of the much higher levels when Kennedy acted. You might have mentioned the Bush cuts while fighting two wars that set us on the slippery slope to huge deficits. At what point are tax cuts no longer feasible?