1. The extension is not complete - the richest are no longer receiving the cuts. This, though will worsen the budget deficit, will save 700 million compared to the Bush's version.
2. Another issue is about the weaken economy. Financial crisis leaves behind a crippling effect that supposedly make the recovery very slow. Thus the extension is somewhat necessary to avoid future risk to the feeble economy, and also a small step to fight against budgetary deficit.
Currently the factors of production are largely underemployed, so tax cuts could have the effect as a fiscal stimulus without an investment crowding out, but a rise in level of investment. However, cautious firms are very hesitant to expand their investments, keeping the economic activities largely under-operating. Real production could not be delivered until financial certainty are ascertain to firms -- so why don't the government do more extended effort to first help the financial market first?
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