The new tax bill will add about $1 trillion to the deficit over the next two years.
Readers who thought the November elections were all about voters signaling Washington to stop spending, this bill is a clear refutation that politicians heard us.
But will it stimulate the economy? In a word, no.
Extending tax cuts, or more accurately not raising taxes during a recession, will not spur the economy. It preserves the status quo.
Even more important, since delaying the tax increases is not permanent, it will not settle investor qualms about the economy and instigate investment, which is the real source of new jobs.
The bill also cuts employee payroll taxes by 2 percent. Since it is employers that hire people, not employees, one could easily argue the bill gets even this stimulus wrong; it does nothing to lower the cost of hiring, while marginally increasing the desire to work.
A more aggressive form of payroll tax reduction aimed at leaving more cash in the hands of employers was instituted in Germany as their form of stimulus. Remember that Obama's version of Keynesian stimulus was government style spending mostly on government and public union jobs.
Causality is difficult to establish, but it is interesting that Germany has emerged from recession while we remain mired in ours. Certainly allowing consumers to choose their own spending methods makes more sense than the top down government approach.
But here again, since it is only 1 year in duration the payroll tax reduction will have only temporary effect.
The lion's share of the bill's cost extends Unemployment Insurance (UI) for another 13 months. This legislation is purely a compassion play. It will not stimulate the economy; in fact it will tend to preserve the stagnant economic status quo.
And while we all care about the unemployed, it is most disappointing that humbled politicians did not make at least some effort to offset UI costs with spending cuts somewhere else.
Paul Ryan seems to understand this thinking. Unfortunately, he is in the extreme minority.