The Deal on The Deal

Here's a scary number.  The number of people on food stamps increased to 42,900,000 people in 2010 from 17,300,000 people in 2001.  This in the richest society the world has ever known.  It is a sad, sad commentary.

(If all my mumbo jumbo, arm chair blabberings about economics that follows doesn't interest you please at least skip to the last paragraph.)

 Now look at how the distribution of benefits from the most recent tax deal will be distributed.

Over all I waiver from slightly indifferent to negative in my feelings on this tax compromise.  By far and away the majority of the money goes to people that absolutely don't need it.  It goes to people who are not going to be plowing the money back into  the economy in a hurry.  The problem isn't rich people devoid of cash to invest.  they have it.  So do companies.  They aren't spending (hiring) because there is no demand.

The reason I find myself floating towards indifferent is that it does do some good things.  The extension of unemployment benefits for 13 months is critical to allowing millions of people to hang on.   Without it that many more people would be added to the 42.9 million food stamp recipients.  This is stimulus (or at least maintenance of the current economy).

The other strong stimulus portion will be the 2% decrease in the payroll tax (FICA, aka Social Security taxes).  This will put a fair amount of money into the hands of people that will be spending money.  It does so in a manner - a little bit each pay check - that people are more apt to spend it than stuff it away in savings.  The problem with this tax break is that it will exasperate people's opinion that Social Security is in trouble.  Maddeningly enough, President Obama said Social Security funding was a long term problem for the states on NPR this morning.  It's not.  Let's look.

Notice that the cost of Social Security does not continue to increase.  The line is basically level.  Making up the short fall requires nothing more than an increase in revenue.  Admittedly it is politically difficult but it is not an intractable problem.  Medicare on the other hand...

Also, in 12 months, when the TEMPORARY 2% tax relief is scheduled to expire politicians - mostly Republicans - will be screaming that Obama and the Democrats are raising taxes.  Look at the rhetoric over the past year or so.  That is exactly what they've been screaming as Bush's TEMPORARY tax cuts were scheduled to expire.

So, the summary is that the deal is likely to have some important, positive effects but we had to give away a lot to get something good. I wish it could have been different but I don't know what other deal Obama could have cut with the Goppers.

Side note.  It's cold.  It's the holidays.  People are hungry.  Here's some Chicago links where you can help.  If you're not a Chicago reader google the food pantries in your city or town.
Linkage:
Greater Chicago Food Repository
Lakeview Food Pantry