Pelosi's Offer of Compromise on Investment Credit is Probably OK

Evidently, Speaker Pelosi is willing to include investment tax incentives in her stimulus bill in exchange for the Republicans backing off the (ridiculous) demand that a permanent extention of Bush's tax cuts be included in a stimulus package. No economist believes that permanent extention is a stimulus measure. The extention of the cuts wouldn't take effect until 2010. Nevertheless, the supply side crowd was gunning for it.

Pelosi needs to do something. Although Bush will not be explicit about what he is talking about, on paper an investment credit is less damaging than across-the-board cuts (it will be temporary) and is worth buying off conservative opposition. A credit for private investment, however, is less targeted than a direct increase in federal expenditures, because it assumes that private investors have a list of projects that are ready for approval and the only thing holding them back is the after-tax impact of that decision (not necessarily true as financial accounting rules could require accruing taxes not paid next year due to the credit). Nevertheless, Ideal Candidate approves the concept of a deal.