Let’s listen to what the director of the CBO recommends. What should America’s policy makers do?
Fiscal Policy Options
- Policies that would reduce the marginal cost of adding employees or would be targeted toward people who would be most likely to spend the additional income would have the largest effects on output and employment. Those policies include reducing employers’ payroll taxes and providing aid to the unemployed.
- Policies that would give little incentive for firms to hire or invest—such as reducing business income taxes and reducing tax rates on repatriated foreign earnings—would have small effects.
- Achieving both short-term stimulus and long-term sustainability would require a combination of policies: changes in taxes and spending that would widen the deficit now but reduce it later in the decade.
Potential Changes in Regulatory Policy
In CBO’s judgment, the economic effects of certain changes in regulatory policies probably would be too small or would occur too slowly to significantly alter overall output or employment in the next two years.
(emphasis in original)
The first recommendation advocates more money for unemployment and for jobs that will hire people who are more likely to spend the money (i.e. not the wealthy). That’s it. The other recommendations are things not to do. Don’t mess with corporate income taxes and don’t pretend that regulations are what’s holding back the economy. Don’t worry about the short-term deficit and start stimulating. NOW!