Earlier, we pointed out that the most likely scenario in the Bush tax cut debate isn’t Obama winning and Republicans losing, but rather a compromise where everyone gets to keep their tax cuts.In the event of that compromise, the Democrats are likely to get a lot of their new fiscal stimulus measures passed, including new infrastructure spending, in an effort to balance out what might otherwise be perceived as a Republican victory.
This way, Democrats can say they cut middle class taxes and put American laborers back to work on infrastructure projects. Republicans can say they got everyone tax breaks, including the more wealthy elements of the party, and blame the President for the increased spending.
In this scenario, the only loser is the deficit, which will increase as a result of all the new fiscal stimulus.
But maybe that’s not such a bad idea, as Societe Generale pointed out that this potential loss in fiscal stimulus could hit GDP growth for 0.9% in 2010.
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