The National Journal’s Jim Tankersley correctly points out that the Buffett Rule will not, by itself, solve the most pressing economic problem in front of us: the still far too high unemployment rate. Then, bizarrely for Beltway writers talking about the unemployment rate, he also correctly points out what would help lower this rate: increased aggregate demand.
But it doesn’t follow from here that the Buffett Rule is bad policy. In fact, for those who think that we should aggressively target a lower unemployment rate in the near-term while also simultaneously locking in commitments to reduce longer-run budget deficits, the Buffett Rule should be seen as a huge win. However, this is if (and only if) it is accompanied in the next couple of years with aggressive fiscal job-creation measures such as infrastructure spending, aid to states and local governments, and making sure that existing fiscal support (unemployment insurance, food stamps, targeted tax cuts) does not fade away.
Of course, I’m not one of those who think we must only pair near-term measures to lower unemployment with longer-term measures to close the deficit. I’d be happy to take the near-term measures, well, in the near-term and deal with longer-run issues when we can.
And, in fact, it would be optimal from a pure economics perspective to finance aggressive near-term fiscal support with debt in the short-term, rather than (even Buffett Rule-rule style) tax increases. But given the near-universally misplaced D.C. obsession with closing budget deficits, always and everywhere, financing job-creation efforts with the Buffett Rule and other high-income tax cuts makes plenty of sense to me.
Permanent tax increases on upper-income households provide very little drag on near-term recovery, whereas the intelligently-directed fiscal supports noted above have quite large effects. Moody’s Analytics chief economist Mark Zandi pegs the fiscal multiplier (i.e., the increase in GDP stemming from a dollar of spending increases or tax cuts) for infrastructure spending at $1.44, versus $0.35 for permanently extending all the Bush-era tax cuts. This implies that a dollar of infrastructure investment financed by a dollar of permanent tax increases would generate on net $1.09 in economic activity (a balanced-budget-multiplier).
Tankersley concludes his piece, “If the Buffett Rule was a serious pitch to help the jobless, it would deal with one of those main drivers of unemployment. It would boost persistently weak aggregate demand or incentivize business investment.”
Nobody agrees with this general sentiment more than us at EPI – really. But given the mad rush to cut deficits, throwing the Buffett Rule on the table seems awfully smart. It minimizes short-run damage to jobs and growth from reducing the deficit, it can be paired with effective fiscal support to yield extra economic activity and jobs without increasing the deficit, and it locks in a policy that will make our tax system fairer, more efficient, and capable of generating the revenue needed to fund government in the long-run.