THE number crunchers have had their first stab at Monday's tax deal and the economic impact is impressive. Goldman Sachs now thinks the economy will grow as much as one percentage points faster next year than its current forecast of 2.7%, which was bumped up from 2% only a week ago. JPMorgan has raised its 2011 forecast (fourth quarter compared to a year earlier) to 3.5%, from 3%. Moody's Economy.com sees growth next year at 4%. All of these forecasts imply some decline in the unemployment rate.

In my initial post last night I put the cost of the package at about $800 billion in 2011; that was an error (since corrected). The cost is spread over two years. The figure is obviously preliminary. Moreover, the majority of that is continuation of existing policy. Relative to baseline, the additional stimulus next year is more like $300 billion. Michael Feroli of JPMorgan breaks it down:

For fiscal year 2011, we are now looking for a fiscal deficit of $1.5 trillion, up from $1.2 trillion. This is very preliminary, but the revision incorporates about a $120 billion reduction in payroll withholding taxes, about $50 billion in more jobless benefits, over $100 billion from depreciation allowances and $10 to $30 billion from the other expiring tax credits. For fiscal year 2012, we have revised up our deficit forecast from $1.1 trillion to $1.2 trillion.

The initial reaction, in particular among liberal commentators, was that this was a political loss for Barack Obama, since he gave up more than the Republicans. I initially shared that view, but a colleague notes that this constitutes a loss only by narrow Beltway-based accounting. What will ultimately matter in 2012 is how the economy performs, not whose policies are responsible for that performance. If the economy is booming a year from now, Mr Obama may be seen to have lost the battle but won the war. In spite of their grumbling, the rest of the Democratic caucus may also benefit. As a correspondent notes, “This is a pro-incumbent kind of package. And Democrats have a lot more incumbents running in 2012 than Republicans do.”

Outside the beltway, it doesn't matter who wins or loses but whether it's good for the economy. In the short run the answer is, unambiguously, yes. In the long run, there's not much comfort to be taken from the fact that Democrats and Republicans have once again proven they can come together to run up the deficit. Awfully nice of White House officials to credit both the Bowles-Simpson and Domenici-Rivlin commissions for the payroll tax cut idea; pity all their ideas for reducing the deficit remain untouched, like the vegetables on a kid's dinner plate.

In some ways this deal might make thoughtful long-term fiscal reform harder. Mark Thoma worries that the payroll-tax cut may be difficult to reverse a year from now, with bad consequences for both the deficit and, ultimately, Social Security:

Temporary tax cuts have a way of turning permanent. That's especially true in this case since labor markets are very unlikely to recover within the next year and it will be easy to argue against the scheduled "tax increase" for workers… That endangers Social Security funding—relying on general revenue transfers sets the system up for cuts down the road.

Treasury bonds sold off sharply today, sending the 10-year yield up 20 basis points to 3.12%. This is mostly a continuation of the risk-on trade that's been working for several weeks now as the economic data have turned positive. It's nice that risk appetites are returning, but there's a less comforting message as well: America should not take its rock bottom borrowing costs for granted. Perhaps, if this bond sell-off continues, it will do what half a dozen commissions couldn't: create political momentum for fiscal reform to accompany stimulus.