Tags: Blinder | Safety | Net | Fixing

Princeton Economist Blinder: ‘Safety Net’ Needs Fixing

Wednesday, 15 February 2012 08:20 AM

Princeton economist Alan Blinder says the two percentage point payroll tax holiday and emergency unemployment benefits for the long-term unemployed need to be extended for another 10 months to make sure the safety net stays in place.

"Continuing both policies through the end of this year should be a no-brainer," Blinder writes in The Wall Street Journal. "In fact, when the two-month deal was hurriedly passed in December, virtually everyone on the planet breathed a sigh of relief and assumed the other 10 months would follow."

"Sadly, however, Republicans and Democrats are now squabbling, in their usual partisan way, over whether to do it, how to pay for it, and a few other extraneous matters that shouldn't even be on the table. It's embarrassing."

Blinder suggests a compromise: Don't pay for it at all, at least not now.

“Raising other taxes or cutting other benefits would negate much of the stimulative impact of the payroll tax cut and the unemployment benefits,” says Blinder. “In the long run, however, we can and should pay for these deficit increasers many times over.”

Blinder suggests perhaps $10 of long-term deficit reduction for each $1 of short-term stimulus.

“In this case, the bill would come to about $1.6 trillion over 10 years—a down payment on the deficit reduction we eventually need—but not starting until fiscal 2014, at the earliest.”

Spending cuts in the Obama administration’s fiscal 2013 budget plan should be phased in gradually to protect the economic recovery, U.S. Treasury Secretary Timothy Geithner said.

“Cutting spending too deeply or too soon would damage the economy in the short term, impede our ability to make necessary investments for long-term growth, and achieve deficit reduction at the expense of the most vulnerable Americans,” Geithner said in testimony before the Senate Finance Committee.

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