The economy remains fragile and is performing well below its potential. Despite this, Congress has little appetite for further action to support jobs and growth, and the deficit has become the fig leaf of choice for those wanting to stand in the way of additional supports.
But deficit reduction and job creation are not competing priorities. Job creation is needed today to ensure a strong economy and a solid tax base tomorrow: You can't reach reasonable budget targets without a strong and rapid recovery, and you won't get a strong recovery if you pursue austerity in a weak economy.
"Is there something interesting to say about this year’s Nobel Prize winners?" challenged my colleague next door. Could I explain what Leonid Hurwicz, Eric S. Maskin, and Roger B. Myerson did that was so great?
"Yes!" I replied. "Their research on 'mechanism design theory' broadly, and incentive compatibility and preference revelation specifically, are an important part of several sub-fields including game theory, public economics, and even some social choice theory."
"No," he said, "something interesting to the broader public." Hmm, well that’s harder. I sent him packing (literally -- he caught a flight to LA). And I also sent the idea to the back-of-the-brain.
As early as next month, some Democrats seem ready to go along with most Republicans and implement a permanent repeal to the estate tax, a change that would reward the wealthy and drag down the economy by increasing the deficit. But it doesn't have to be this way.
The estate tax represents a profoundly American idea: Although parents should be able to pass on wealth to their children, great concentrations of personal wealth should not grow unchecked from generation to generation. As Franklin Delano Roosevelt put it, “Inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government.”
For four years President Bush has touted his tax cuts as an economic cure-all, but middle-income workers have instead watched helplessly as the tiny tax cut they received has gone to pay for higher property taxes, tuition increases, and exploding medical costs. While the conservatives' tax initiatives have wreaked havoc on people barely living on their paychecks, wealthy taxpayers have enjoyed ever-higher incomes taxed at stunningly lower rates. Furthermore, Bush's tax cuts have wrecked public services and undermined prospects for long-term economic growth.