Obama's stimulus tax plan to boost economy and jobs market

The Senate passed Obama's tax cut plan on Wednesday with a vote of 81-19. Late Thursday, the House of Representatives passed it 277 to 148. It's now a done deal (President Obama will sign it into law soon).

The compromise will extend unemployment insurance benefits for 13 months, keep the Bush tax cuts in place for all Americans for two years, cut payroll taxes, and extend a few other tax breaks.

By reducing taxes and increasing spending (through unemployment insurance payments), the bill is essentially a fiscal stimulus package for the next two years.

Economists at Morgan Stanley expect this deal to raise GDP growth by 1 full percentage point in 2011 (up from their previous growth projection of 3 percent to 4 percent now).

The Center for American Progress, a progressive think-tank, estimates that it will create or save 2.2 million jobs in through 2012. Meanwhile, Moody's increased its forecast for 2011 job-creation from 1.3 million to 2.8 million because of this bill.

As far as how much this plan will add to the budget deficit, it depends on how one looks at it. First of all, the bulk of these measures are merely the extension of existing measures, which would have expired in the absence of this bill.

If one merely compares the differences of the budget with the bill versus without the bill, the deficit would climb by $900 billion.

However, some provisions of the bill -- like extending tax cuts for middle-class Americans -- were widely expected to pass. Others, like the payroll tax cuts, were not.

Morgan Stanley said the final version of the bill, for 2011 and 2012, was $400 billion above what they assumed it would be on December 3. That $400-billion amount is equal to roughly 1.3 percent of GDP for each of the two years.

Email Hao Li at hao.li@ibtimes.com

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