Letting the payroll tax holiday expire was both wise and stupid
Last edited Wed Jan 2, 2013, 10:20 PM - Edit history (1)
I get the arguments against the payroll tax holiday vis-a-vis the politics of entitlements. I am sympathetic to those arguments. Though the holiday has no actual effect on social security whatsoever, I understand someone disliking using the social security tax collection system as a stimulus vehicle for the impression it might create in some weak-minded party or another.
It should, however, also be understood that reducing the disposable income of the whole damn nation at a time when unemployment is high and the economic recovery shows no evidence of being particularly strong or self-sustaining is seriously stupid.
The payroll tax holiday was enacted for reasons having nothing to do with social security. It is the fastest and simplest way for the government to inject stimulus spending into the economy in a form that will be spent, and that gets to people who work but do not pay income tax. (That pesky 47%)
$20/week in ones' paycheck is perfectly targeted stimulus because it gets spent. (The same $1000 dollars in a year, if paid in a lump sum, might get saved or used to pay down debt.)
The solution, if one was needed, was to let the holiday expire while adding direct stimulus for the working class of at least the same amount of money as the payroll holiday amounted to in some other way or form.
It was bad politics and bad policy, at this point in economic time of January 2013, to allow everyone in the country to get a de facto 2% wage reduction.
Bad fiscal policy that will reduce GDP somewhat -- the opposite of what we should be trying to do.
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