Our annual holiday kabuki special

So we have some typically cynical kabuki going on in DC over the extension of the payroll tax cut.(I personally wish we would just send out government checks instead of enacting payroll tax cut because inevitably people are going to start complaining that SS is draining the treasury and has to be cut. But then, they’re already doing that so I guess we’ve lost that battle.)

Anyway, here’s the latest from dday. He says that for all the happy talk from McConnell about passing it, it appears the plan is to demand something odious in return to pay for it and then blame the Democrats for raising taxes when they refuse. (Sound familiar? It should, it worked beautifully last December. Look for them to hold up the Unemployment extension too, just for kicks. It’s Christmas. They deserve a little fun.)

The big problem with this whole idea is that there should be no trade-off for this at all. Stimulus is supposed to put more money into the economy. Extending the payroll tax cut is just status quo, which at least won’t be contractionary. But insisting that we cut something else in order to keep it going is.

They’ve downgraded their forecast significantly for years to come, yet they remain committed to the spending cuts that are partially responsible for the downgrade.

The first figure shows the forecast for slower real GDP growth and higher unemployment as a result of the OBR’s update of their March report. Next year, for example, they expect real GDP to grow 1.8% more slowly—0.7% instead of 2.5%–a large decline and a rate that will give rise to growing unemployment, as you can see in the second figure. That one compares the forecasted unemployment rates from the March forecast with the new ones. The new ones are a lot higher and initially growing instead of declining.