The first problem with the distinction Republicans are making between the need to offset the cost of extended unemployment benefits (they say “yes”) versus the need to offset the cost of tax cuts for the rich (they say “no”) is that they are mixing up the short-term fiscal policy goal of stimulating aggregate demand with the longer-term fiscal policy goal of encouraging aggregate supply.
But then there’s the issue of how great these tax cuts for the rich actually are (I mean, besides for the rich), even for encouraging aggregate supply over the longer run. Today Bruce Bartlett reminds us that there’s a wealth of evidence that tax cuts don’t work well as a “diet” to “starve the beast” of government spending. And the literature also shows that they don’t work that well as an “exercise” program to build up those major “supply-side” muscles in our economy: labor supply and saving– especially not when deficit financing acts as the public sector’s counter-drag on national saving. (One example of that latter literature, which I’m sure Bruce has gathered in many other places at other times (including in his latest book), is this 2004 piece by Bill Gale and departing OMB director Peter Orszag.)
And to be fair, when the economy comes out of its current slump and is back to “full employment,” I’m sure Democrats will be saying things that suggest that their favored deficit-financed stimulus policies (which are indeed very effective at stimulating aggregate demand immediately) are also the best things for the longer term, doing their own flip-side version of mixing up the short-term economic goals with the longer-term ones.