Like I said earlier, I don’t want to spend a lot of time on a point that’s completely unwelcomed in the current debate, but instead of all this drama around how we’re going to pay for extending the payroll tax cut and UI, the smart economic move would be to add them to the deficit.
How can I be so cavalier, you ask? Here’s why: Since they’re temporary, the UI and payroll extensions will have almost no impact of the longer term deficit. Let me show you.
Based on this CBO score of the costs of the two measures, the figure below plots their impact on the deficit/GDP ratio through 2019. It starts out as a fraction of a percent and goes to almost zero pretty quickly (it doesn’t get all the way to zero because of servicing the added interest on the debt).
Source: CBO (see text for link); my calculations
Add to this the costs to growth and jobs of failing to renew UI and payroll, and all I’m sayin’ is that fears about their impact on the budget deficit should not be the slightest bit convincing. Unless, that is, you’re inpenetrable to facts, in which case, it’s a major, job-killing, deficit disaster!