Stimulate the Economy by Reducing Payroll Taxes?
Wednesday November 19, 2008
Eclectecon suggests it might not be a bad idea, and quotes a Wall Street Journal article:
That being said, if the choice is between a payroll tax cut and expensive industry bailouts, I know how I would vote.
If Europeans, or anyone, really want to stimulate their economies, they will be wasting time and money with tax rebates or public works programs. The stimulus with the proven track record at jump-starting economies is the one least often contemplated: a simple, visible marginal tax or payroll cut that would boost long-term incentives to work and invest. Lower payroll taxes, for example, would reduce labor costs, thus helping to preserve some jobs now while ensuring that any future recovery will be stronger.I do not think it is a horrible idea, but I suspect there are ways you can get more bang for your buck. The marginal efficiency cost of payroll taxes tends to be fairly low relative to corporate income taxes. In other words, payroll taxes are far less damaging to the economy, per dollar collected, than many other taxes (or at least the evidence we have suggests so).
That being said, if the choice is between a payroll tax cut and expensive industry bailouts, I know how I would vote.
Comments
I can see your point and I am absolutely with you on where to put my vote. We have bigger things to face than these payroll taxes.
I’d accept a payroll tax cut in general as part of a broader stimulus plan, but the quote you put up sounds to me like just another supply-side argument: with words like “marginal” and “long-run.” These (to the rich) tax cuts that supposedly make HUGE changes to incentives to work just don’t work much. They may have modest long-run effects, but they certainly make for bad countercyclical policy.
The claim that reducing tax will stimulate the macroeconomy is shortsighted. With less tax money comming in the government must reduce its spending most of which is in providing services to the public by the employment of people just like us. Thus all that happens with a tax cut is that instead of government employees being kept busy, private and public complany one are.
The claim of greater efficiency in the private sector is not necessarily true either, because small firms are also unefficient compared to bigger organizations. This is due to the need for a larger proportion of the employees and managers having to do certain vital jobs that are common to all of the companys (like payrolls and national insurance).
History has shown that a tax cut only balloons the budget deficit, requiring later raising taxes to try to undo the damage done by the tax cut.
We, in the U.S. currently have a $10 Trillion national debt. Not counting the $750 Billion Wall Street bailout, and the $150 Billion AIG bailout. And the ongoing $450 Billion yearly budget deficit. The Social Security fund is heading to bankruptcy. Most business and public sector pension funds are very under funded, and the government agency guarantying pensions is under funded. The FDIC which is taking over more banks every day is under funded. Most state, county and city governments have large budget deficits, and huge unfunded retirement and health care liabilities.
We had the Internet bubble burst, the housing bubble burst, and soon the Dollar bubble explosion.
If there is a light at the end of this tunnel, it is probably a train wreck coming this way fast.
It sounds like we need to calculate and forecast our economic future by computing all the economic factors affecting our economics, such a taxes, preconditioned banks and company bailouts, real estate correction plans, etc. Plus we also need to inject our society of created positivism to change our consumerism now. If we all hold off on spending, we would be expanding the bottom of the hole the real estate boom created.
why is it that with all these smart americans that no one understands that tax cuts do not stimulate the economy. its short term if any. the rich take their tax cuts and stash the money in the caymen islands or they invest in the quickest largest returns that they can get which in turn becomes another bubble. Look back in history and you will see that between THE YEARS OF 1940-1970’s. the way to create wealth is to stop this free trade crap and bring the jobs home. I dont need a 1000.00 tax cut, I need a good paying job so I dont have to use my credit cards to pay for items. That is a false economy driven by credit not by real wealth. Under Bush, he had the most tax cuts ever and yet the economy tanked and created several bubbles. Oil bubbles, real estate, stock market. Jobs Jobs JObs create wealth. Why create just a consumer driven economy. Wealth is created by what you produce. Look at our trade deficits and especially our BUDGET DEFICITS!!! A TAX BREAK ARE YOU NUTS!!!! WE NEED TO CREATE NEW INDUSTRIES WHICH IN TURN WILL CREATE JOBS!!!
Revamp the entire tax structure to the FairTax. That will stimulate the economy faster than anything else as it eliminates all other federal taxes and loopholes.
FACT – The top 1% income producers earn 20% of all the income and pay 40% of all the income taxes…and you wonder WHY they try to avoid some of the taxes.
FACT – The top 50% of the income earners pay 80% of the taxes
What happens when the top producers say enough is enough???