I’m lukewarm on the tax deal, but I do think that the shift from Making Work Pay to a payroll tax cut looks like an improvement. As Charles Blahous has argued at Economics 21, there is something dangerous and dishonest about how we’re accounting for the revenue loss in the Social Security Trust Funds. But it might help accelerate the deleveraging process.

Given that middle income households have the highest debt-to-disposable-income ratios, the fact that the payroll tax cut will give middle earners more than twice as big a boost to their disposable income as Making Work Pay makes intuitive sense, though of course there are those who consider this a very bad thing.

To be sure, the continuing collapse of housing prices won’t help matters. And as Mike Konczal suggests, it seems that households aren’t clawing their way out of debt by saving more and spending less so much as the most indebted households are defaulting in large numbers.