The Good, the Bad and the Ugly of the Tax Deal

Cato's Dan Mitchell expresses his thoughts on the deal President Obama and Congressional Republicans reached to temporarily extend Bush-era tax cuts.

The good parts of the agreement is the avoidance of bad things, sort of the political version of the Hippocratic oath — do no harm.

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There will be very little economic boost from this deal. As mentioned above, people generally don’t increase output in response to short-term provisions. I worry that this will undermine the case for lower tax rates since observers may conclude that they don’t have much positive effect.

The temporary nature of the tax cuts, the revival - albeit at a lower level than before - of the death tax and the extension of unemployment benefits will likely mute any positive economic effects from maintaining the current tax rates. The economic recovery will continue, continue to slog along with unemployment remaining high and growth remaining slow.