We should suspend payroll taxes for a year to stimulate the economy.
This seems to be an idea ignored by both the Democratic and Republican parties. The democrats don’t seem to want to do anything that could be perceived as undermining Social Security, and the GOP doesn’t seem interested because… well, I don’t know why.
Our payroll taxes are very regressive: They only hit incomes of $106,800 or below. Between you and your employer, it’s a whopping 12.4% of your paycheck regardless of how little you make. For the poor and middle class who are the ones struggling the most in this economy, this would be an enormous and tangible boost for them.
It would not help those who don’t have a paycheck and are thus not on a payroll - which are the folks who need help the most right now, don’t you think?
Also - by cutting taxes there is less money for vital services. It would decrease the money available for unemployment benefits, medicaid, medicare, social security, and anything else paid for by payroll taxes. Where, then, will the money come from? Should we also abolish unemployment benefits? Medical care for the poor and elderly? Maybe we should abolish worker’s comp, go back to the days when if you weren’t hurt at work it was your problem to deal with, not your employer’s?
Just because you lower taxes is no guarantee businesses will hire more people. No business will hire unless there is work for people to do, and right now the business owners I know and talk to aren’t hiring because of money issues so much as a lack of customers - they don’t have the business coming in to justify it. Should employers hire people to stand around and do nothing? That’s not how it works - thus, it doesn’t matter if you lower their taxes, they have no need to hire more workers so they don’t. And if there IS sufficient work they’ll suck it up and hire people even if there are payroll taxes.
Money that goes to service debt (one suggestion for the additional tax home pay for workers) does NOT generate new jobs. So while it may decrease debt for individuals it doesn’t generate the jobs we need.
This strikes me as people looking for a magic solution. There isn’t one. We’re really in a downward spiral and something as simplistic as a payroll tax holiday just won’t do a damn thing to reverse it. We need to find a way for people to earn enough money so they can actually buy things again.
The poor and middle class who see a boost in their paychecks will turn around and spend that money. This will increase demand for goods and services, which will consequently increase demand for labor. This tax cut will go to people who are most likely to spend any increased income they have, unlike the Bush era tax cuts which go almost entirely to the already rich.
I’m not proposing that we make any cuts to government services like unemployment, food stamps, medicare, etc.
Put it on the government credit card. Now is an especially good time to borrow money, because interest rates are practically zero.
Excellent idea, especially because it would specifically boost hiring. (Perhaps less than a full 100% “holiday” would be better.)
Some of the lost SocSec revenue could be regained by gradually increasing carbon/gasoline tax and diverting this to Soc Sec Trust Fund. I’ve advocated this for many years (and I think Krugman et al have joined my bandwagon! )
The idea that Highway taxes must be spent on Highways, Soc Sec Fund must be financed by Soc Sec taxes, etc. may seem logical, but absolute blind adherence to that doctrine is counterproductive.
A payroll tax cut would be a good idea and one that actually has a chance of being passed by Congress. In fact Greg Mankiw, a noted economist who worked under Bush, has been advocating it for a long time.
This is an excellent prosposal which would simultaneously:
a)create jobs in the near term
b)reduce carbon emissions in the long term
c)not increase the long-term deficit
Nouriel Roubini also wrote a good Op-eda month back advocating a payroll tax cut.
Mankiw’s proposal is substantially different. He’s proposing a permanent elimination of the payroll tax. Generally, I’m suspicious of short term efforts that are supposed to boost hiring. Am I really going to hire someone because I have my costs reduced for 1 year? What do I do on Jan 2 the next year? I suppose economists have studied and this, and that it depends on how much you want to bet that the economy will support the job 1 year from now w/o the tax reduction.
Right now, I’m not in a betting mood on that topic.
Is there a rough rule of thumb for determining how much money the federal and state governments raise in revenue for every 1% increase in GDP growth? Reading the CBO reports on the Stimulus, they have pretty good estimates for how much $700 billion in spending increased GDP, but I don’t see a lot of discussion of how much this resulting increase translated into tax revenue.
Actually, i’m similarly suspicious of the idea that even permanent tax cuts will lead to the boost in hiring that some advocates claim. Businesses don’t hire more people just because they have more revenue. They hire more people if they think it will create more revenue.
Imagine you’re a business owner, and you suddenly get a corporate tax cut that saves you a bunch of money each year. Are you really going to turn around and simply use that money to hire another person without any consideration of whether that extra employee might actually help grow your business? Of course not. Unless the cost of another employee is less than the value of extra business brought in, you’d be silly to hire a new person.
Of course, there are cases where the hiring of a new person can allow a company to compete for or take on more business, more contracts, whatever. But unless you’re actually turning business away because you don’t have the employees to cope, or you’re declining to compete for business because you’re short of manpower, i’m not sure why you’d hire another person rather than pocket the cash. And if you are turning business away, then it might be in your interest to hire that new person whether or not you get a tax cut.
It’s doubtful people would spend. People already OWE and are using credit or trying to get the bills reduced.
Any extra money would be spent on making more than a minimum payment on their credit card, paying a gas bill or such.
This isn’t going to help in hiring new people.
Temp jobs don’t do any good. All it does is solve the problem for Monday and cause the problem to reappear on Friday.
Poor people and people with tight budgets are cutting back on THINGS not goods. They aren’t going to the dentist, they aren’t saving for college and stuff like that.
To stimulate the economy you need to move ordinary goods and services
I can see, in theory, how a tax break could stimulate investment. But only in an environment that is starved of capital. We are more awash with capital these days relative to economic growth than perhaps any time in modern economics.
If there’s any time it won’t work, it’s now. And since I’m sceptical that it even works in the first place, put me in the “definitely won’t work” camp.
What it does is “prime the pump.” Our country certainly has the capacity for everyone to be fully employed. But right now, demand is artificially low because people are reluctant to spend. Why are people reluctant to spend? Because other people are reluctant to spend. The entire point of stimulus is to get the economic gears ticking again, and presumably when we’re back to full capacity we won’t need to keep intervening.
I thought he was trying to increase consumption not investment. Those with jobs take home more, so spend more; newly-hired spend; now investors will invest.
I’ve no “cite” for this, but the idea that an effective 10% across-the-board reduction in wages costs will not stimulate significant hiring seems very wrong to me.
How about eliminating payroll tax, but for each year you and your employer do that - you agree that your Social Security benefits start one year later. Then do the same with Medicare taxes and eligibility -
By my math, it’s 15.3%. 6.2% * 2 for social security, and 1.45% * 2 for Medicare. The percentage is less if you make enough money that your SS contribution is capped. Putting a holiday might give you and extra 7.65% per month, although I wonder if that will translate to a refund for the employer’s contribution for new hires, or if they will just pay the same net wages.
I don’t pay either tax 10 months out of the year, so it wouldn’t affect my directly. Even in those two months I am not exempt, the 6.2% goes into a 457 plan, which I can take back whenever.
I wouldn’t put too much emphasis on it myself. There are other costs that exist that can’t be calculated so neatly.
Not immediately. But if demand is being depressed by private debt loads, then decreasing those private debt loads will eventually help.
Think of it like having two credit cards, one with 5% interest and one with 0%. The gummint can finance its debt more easily than private actors, and so, if we’ve got a burden that can transferred to the cheaper card, then it’s not a bad idea to do so. This is actually one way to look at the Great Depression. Private debt loads dropped just as government debt increased, and after the war, the lower rate helped us in paying it back.
Now is an especially good time to borrow money, because interest rates are practically zero.
I thought he was trying to increase consumption not investment. Those with jobs take home more, so spend more; newly-hired spend; now investors will invest.