Obama’s tax agreement could increase the GDP according to analysts
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TEXT OF INTERVIEW
JEREMY HOBSON: Now let’s get to the tax cut deal worked out between President Obama and Republican leaders in Congress. Investors are already selling off government bonds because of worries about what all this tax cutting will do to the federal deficit.
Let’s bring in Richard DeKaser, economist at the Parthenon Group. He’s with us live from Boston as he is every Wednesday. Good morning.
RICHARD DEKASER: Good morning.
HOBSON: So Richard — the people who like this tax cutting plan say all these tax cuts are going to spur growth. Are you in that camp?
DEKASER: Oh absolutely. This is kind of a big deal you know. We’re not using the phrase stimulus anymore because it’s not working in focus groups, but that’s what it is. And it’s big. You know the social security tax cut alone is going to give about $1,000 to your typical family. Cumulatively over $120 billion. That’s about eight tenths of a percentage point of GDP. So even if people spend some of that — or rather save some of it — we’re adding at least a half a percentage point to GDP growth next year, and the rest of the package adds almost an equivalent amount.
HOBSON: And we’re also adding a lot to the deficit. But a lot of people say the best way to reduce the deficit in the long term is to spur growth right now. Can this plan both spur growth and reduce the federal deficit?
DEKASER: No, I don’t think so. You know I wish we could have our cake and eat it too, but the reality is that it’s very rare when you find a tax cut that can actually promote so much growth as to pay for the tax cut in the first instance, we’re going to have to get to deficit cutting, but like most people we think that tomorrow is the best time to do that. And tomorrow eventually will arrive.
HOBSON: Richard DeKaser, economist at the Parthenon Group, thanks so much for your time.
DEKASER: It’s been my pleasure thank you.
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