Liberals find themselves in a tax trap. A tax bill trap, that is. While the recently enacted tax bill certainly has elements with which conservatives can rightfully disagree, there are far more – and far bigger – parts for liberals to dislike. Following the adage “the enemy of my enemy is my friend,” conservatives should love this legislation.
The most obvious problem for liberals with the extension of all the Bush tax cuts for an additional two years is the bipartisan mention of its positive economic effect. This has become the consensus selling point for this legislation.
The question that such commendation raises is: When will less economic growth be the desired outcome of fiscal policy? Not for the foreseeable future for sure.
This is a particularly acute problem for liberals because the yardstick by which they measure the economy’s strength is the unemployment rate. This is the reason liberals historically have been willing to trade inflation for increased employment. Today, despite a growing list of positive economic indicators, the Left sees the current economy as unimproved because of high unemployment.
Unemployment is also the indicator that most believe will be the last one to show a rebound. Both the Congressional Budget Office and the Federal Reserve recently released projections showing a strengthening economy, but persistently high unemployment for the next few years. CBO sees the unemployment rate as being 9 percent next year and averaging 6.7 percent over 2012-2014. The Fed is even more pessimistic – projecting unemployment at 9.1 percent next year, 8.2 percent in 2012, and 7.4 percent in 2013.
So the question to liberals becomes: When will lower growth and higher unemployment be acceptable? With such unemployment estimates, it is hard to imagine the answer coming until well after the current two year extension.
The second liberal problem is that implicit in the embrace of the current tax bill is the admission that the earlier spending stimulus bill was a failure. So not only has conservatives’ policy prescription won, theirs has lost.
In the public’s mind, had the spending stimulus bill worked, the country would not be at this juncture now. The proof lies again in liberals’ favored economic variable. Had unemployment gone down, or even remained the same, they could have attempted to make some case for either more spending or higher taxes. But it did not, so liberals’ favored fiscal tools are distinctly out of favor.