So the government played this one smart. They extended the already existent Bush tax cuts. This was smart because of several things.
1) Businesses will be willing to hire more people because they know what their costs will be and do not have to cut any additional costs due to increased taxes.
2) As a result of businesses hiring more people, consumer spending will increase, thus allowing businesses to hire more people.
3) Investors will continue to invest in companies because their tax rate is not increasing. If the tax rate had increased, most people would just hold their stock until the rate lowered again.
I guess the real question is, by how much will this tax extension lower unemployment? After some lengthy analysis of the Great Depression unemployment rate and our current unemployment rate, I think it will be about 8.5% by the end of 2011. The interesting thing about the Great Depression unemployment chart vs. the current situation's chart is that they are nearly identical. They both go up steeply and then dip in the middle after the first peak. After that short dip they rise slightly, peak, and go back down until the next recession. After 2011, the unemployment rate will go down at a faster pace, due to the increased amount of spending available to individuals and businesses. According to the graph's, it will be about December 2013 before the unemployment rate goes down to 4.5% again. Hopefully I'm wrong and it will go down faster. If the president and congress can refrain from making any legislation that would hamper that progress, it may go down faster. This tax rate extension is a great step in that direction. Next on the agenda, control spending!
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