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Drawing from my breakdown of fiscal conservatism into four separate positions, I’ll explore and evaluate the recent tax compromise between the president and Republican leaders.

1.  For balanced budgets, and against deficits.

Extension of tax cuts + extension of tax credits + increase in unemployment benefits = Massive fail.  Grade: F

2.  For smaller government, meaning lower taxes and lower government spending.

On net a win, since the tax cuts exceed the increase in spending.  Grade: B+

3.  For reducing the percentage of the tax burden placed on the wealthy.

On net a win, since tax cuts are heavily skewed towards the wealthy.  Grade: A-

4.  For government spending that has a demonstrable return on investment, against wasteful spending that does not.

The payroll tax cut seems like the best idea, since it adds incentive to hire.  By contrast, further extension of unemployment benefits reduces incentive to work.  As for the income tax cut extensions, my sense is that there’s fairly little difference, ROI-rise, over who pays taxes.  People have ideologically-driven preferences, and fiscal conservatives lean towards shifting the tax burden away from the wealthy, but I don’t see this as being for efficiency reasons.  Grade: C

It will be revealing how fiscal conservatives break on the compromise.  If tea partiers come out in favor of the deal, they belong in groups 2 and 3.  If they oppose it, they belong in groups 1 and 4.  Thus far, they’re pretty quiet.

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One Comment

  1. A couple points on the estate tax, which you don’t talk about.

    It’s a pretty big win for the wealthy, as you point out in point 3. Even more so than the analysis you posted suggests, which I believe I doesn’t include effects from the lower estate tax.

    If you want to rail against the unemployment benefits in point 4 as decreasing incentives to work, you can’t ignore that the estate tax also decreases incentives to work.

    A favorite post on the estate tax: http://budiansky.blogspot.com/2010/10/adam-smith-thomas-jefferson-and-other.html


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