Ezra Klein likes a Republican idea: "one-year suspension in the Social Security payroll tax "

[ProSense]

A Republican Stimulus That Just Might Work

<...>

But the more interesting action was on the Republican side of the aisle. On Thursday, House minority leader John Boehner released a “two-point plan for immediate, bipartisan action on jobs and spending.” Boehner’s proposal? Extend the Bush tax cuts and pass a budget that holds spending at 2008 levels. That’s a bit back to the future — or at least back to the Aughts. The worst economic crisis since the 1930s, and all we need to do is extend some tax cuts from 2001 and 2003 and hold down spending a bit? This doesn’t require any new thinking at all?

The most stinging counterpoint didn’t come from Nancy Pelosi, though. It came, quite inadvertently, from Indiana Gov. Mitch Daniels, a wonkish Republican who led George W. Bush’s Office of Management and Budget from 2001 to 2003, and who, that same Thursday morning, published a plan that put to shame the proposals from both the administration and the House Republicans.

“A stagnant, impoverished America will not be a greener or safer or fairer place,” Daniels warned. “Grownups make trade-offs. Pass the brandy, then let’s get busy.” And get busy he did: Daniels proposed a one-year suspension in the Social Security payroll tax for workers. In an interview, he estimated that this would raise about $350 billion. He also envisioned a tax break allowing businesses to fully expense their capital investments for the next year. As it happened, the administration proposed exactly that this week, though Daniels noted that there was no word of it two weeks ago, when he first drafted his op-ed. “If they’re there,” he told me, “that’s good.”

Put all that together, and Daniels is offering more than $500 billion worth of stimulus in 2011. Some of that would be offset by the policies he proposes to pay for the new spending (which include recapturing unspent funds from appropriation bills and the original stimulus, a hiring freeze for the federal government and giving the president authority to block congressional spending projects after they’ve been signed into law), but we’re still talking about a very serious rescue package.

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Why on earth would Ezra Klein believe this is a good idea?

[DJ13]

1. Why on earth would Ezra Klein believe this is a good idea?

To reinforce the false narrative that SS is in trouble nothing would be better than to cease funding it.

[flpoljunkie]

2. A payroll tax holiday would cost $300 billion, not raise $350B. R's tax cuts bring in revenue lie!

[ProSense]

5. I'm actually speechless

Put all that together, and Daniels is offering more than $500 billion worth of stimulus in 2011. Some of that would be offset by the policies he proposes to pay for the new spending (which include recapturing unspent funds from appropriation bills and the original stimulus, a hiring freeze for the federal government and giving the president authority to block congressional spending projects after they’ve been signed into law), but we’re still talking about a very serious rescue package.

Seriously,

:wtf:

[denverbill]

3. Well, since tax cuts increase government revenue, eliminating the tax makes revenue infinite.

Infinite revenue for one year will pay off our entire national debt and then some, and solve the Social Security and Medicare 'crisis'.

Wow, this thinking like a Republican sure makes solving problems easy!

[golfguru]

8. Tax revenue follows a inverted V curve

--------+---<----tax revenue is maximum here
-----+-----+
---+----------+
--+-------------+
tax rate scale


Something like above figure.
if tax rates are zero, revenue is zero.

As tax rates go up, revenue increases until at the optimum tax rate
the revenue is maximum.

If tax rates are higher than the optimum rate, revenue again falls off
because people find ways to invest in tax free muni bonds or buy foreign
assets or some other tax advantaged scheme such as farming.

[Curmudgeoness]

4. They hate SS, they want it to fail, and after this...

they will be able to claim that it has failed. Good lord, this is the way for them to provide their self-fulfilling prophecy.

[applegrove]

13. Exactly right. I didn't expect this from Klein.

[customerserviceguy]

6. The payroll tax holiday

is a very weird idea. If Bush had proposed that the last two percent of Social Security tax be holiday'ed, the workers and their employers would be required to put it in 401K-like accounts, every single Democratic politician and their supporters would have rightly lambasted it. But when we get a 100% tax holiday, it's a 'good idea'.

[mediaman007]

7. The Federal government will not have any money then.

They will have to borrow to meet Social Security payments, then borrow some more to pay for the programs that they use the excess FICA money for.

Besides, this will fuck up everyone's account. Bad idea!

[DCKit]

9. K&R for one of the most horrible (R) idears of all times. F@%^@^ morans. n/t

[BeyondGeography]

10. Your 2010 Republican Party

Now with extra voodoo. :dunce:

[rasputin1952]

11. Here's a notion...

why don't R's get their crap together and start pushing large corps and individuals to spend the $1.6 trillion they are sitting on to create new jobs and get country moving again?

[ProSense]

12. And a good one. n/t

[depakid]

14. Maybe because it would actually put money in the hands of those most likely to spend it?

and support other people and businesses in their local communities?

If you understood the first thing about macroeconomics, you'd grasp why increasing the disposable income of workers with lower earnings has a pronounced stimulatory effect.

[dionysus]

21. yes, let's defund SS! woot woot!

:eyes:

[depakid]

24. I pointed out why Klein would like the idea

Didn't say that it was necessarily good policy.

btw: there are ways to fund social security through other avenues- not that either party would have the willingness to do so (albeit for different reasons).

The key to stimulus is to get money in the right hands at the right time to make up for the output gap (in private demand) and cuts in state budget revenue.

Australia listened to progressive economists and succeeded in doing this- American policy makers unfortunately listened to a different set of economists, and didn't.

Hence your current predicament.

[dionysus]

26. ah, thats right, you want to replace fica with a wealth tax, correct?

[depakid]

27. There are any number of fiscal measures that could be temporarily or even permanently enacted

bottom line is to increase private demand and utilize multiplier effects to "create wealth" and job growth in local communities.

How that's done or how one shuffles the costs and the funds is less (or at least was less) important than that it gets done.

The most rational proposal at this point would be to pass a financial transactions and Tobin tax on forex.

The most prominent of these policies floated around was estimated to bring in around $150 billion per year to the US, while at the same time creating a disincentive on high frequency computer trading (remember the little glitch last May?).

Unfortunately, despite pleas from other members of the G-20, the administration (with Gaithner the spokesman at the forefront) steadfastly opposes any sort of thing.

Once again, too bad.

[ProSense]

31. "Didn't say that it was necessarily good policy."

Then what does this condescending statement mean: "If you understood the first thing about macroeconomics, you'd grasp why increasing the disposable income of workers with lower earnings has a pronounced stimulatory effect."

[depakid]

34. It means that there are alternative ways to get money into the low earner's hands

or into unemployed or people surviving on government benefits hands. This isn't the only way (though it is one rather efficient way).

Unfortunately- per Goolsbee's statement today,this administration isn't interested in any of that -they'd prefer a far less effective "trickle own" approach- an thus, America is relegated to years and years of high- perhaps decades, of high unemployment.

Pretty sad really- that both parties have become ideologically and structurally incapable of solving your problems (even though there are successful models in other nations that are right there for you to follow).

[ProSense]

37. There are a lot of alternative ways, but what does that

have to do with the specific way described in the OP? You are here defending while claiming that it isn't "necessarily good policy."

What's your opinion on the specific proposal described in the OP?

[TheKentuckian]

15. More crazy talk voodoo economics, now with magic money tree!

Anybody buying or selling this shit is stupid as fuck or evil as hell.

We are well past the point of returns on these breaks, beating a long dead horse.

It is getting near the point of insanity with the devotion to these failed ideas or nearly as bad taking what they'll give no matter how ineffective to do something.

[old mark]

16. Who the hell is Ezra Klein anyway and why would anyone think this is a good idea?

Let's fuck up Social Security, so we can "privatize" and "save" it....

Fucking republicans lie about everything!


mark

[naaman fletcher]

17. terrible idea...

Even if you believe that a tax cut is a stimulus, all of the research that supports that from the Chicago boys is that it's long term expectations of tax rates, not one-off deals, that has the incentive effect. I am not saying that I believe that, but my point is even the research from Chicago doesn't support this.

[and-justice-for-all]

18. Uh NO!!!!! terrible idea......nt

[Peacetrain]

19. What it would do is bring Social Security to it day of not being able to pay full benefits

closer by years.

Not a good idea

[yourout]

20. AMEN....

Baaaddd idea.

[quakerboy]

22. Lets do the payroll holiday. With one condition

The same bill that gives the 1 year holiday on the payroll tax(only for the employee side, not the employer part, mind you, and not the rest of Daniels crappy ideas) also absolutely removes the ss cap completely and forever.

That's a compromise I could get behind.

[Iwillnevergiveup]

23. This guy is on Rachel all the time

And this is not the first time I've done a Scoobie-Doo huuuuhhhhh? on him.

[madinmaryland]

25. Does that assume that the top 2% will be now required to pay their fair share

on their incomes over $250,000 into SS?

Otherwise it is a crock of shit.

[Yavin4]

28. Tax Cuts Don't Stimulate The Economy. Jobs Do.

Most of any tax cut goes into savings, not additional spending. People who are working are scared to death that they will lose their jobs. 10% UE makes people wary of spending ANY money esp. a one-time tax cut.

What people need to feel confident about spending is robust job creation and an UE under 5%. When people feel that getting a job is easier, they will spend more.

Republicans have completely mastered the meme that tax cuts=job creation.

Ezra likes this idea because he knows that the Republicans simply won't vote for any other stimulus other than a tax cut.

Unfortunately, only a robust public works jobs bill is the only thing that will pull us out of the doldrums, but we won't get to that until we go through these stupid tax cutting plans first. There's a lot of economic pain ahead.

[depakid]

29. So, putting an extra pile of cash directly into every working person's paycheck EVERY two weeks

wouldn't stimulate the economy?

:crazy:

[Yavin4]

30. No, It Won't. Because They Won't Spend It.

In order to stimulate the economy, you have to stimulate demand which means that you need people spending. Tax cuts benefit people who are wealthy and/or working, not the unemployed who have curtailed their spending out of necessity. Also, people who are working are far less likely to spend any additional money. They're more likely to pay off bills and/or save money because they fear being unemployed.

[depakid]

33. Of course they will!

Sounds to me like you haven't or don't work.

Take a look at a paystub sometime. Check out that line that says FICA. It's 6.2% of your gross income.

And everyone (even and especially the lowest earners- who live paycheck to paycheck and doing without) pay it.

(There are also Medicare & unemployment contributions to payroll taxes).

All of these people have needs (a haircut, for example, car servicing, new shoes, a home repair, etc.) -and when they have more ability to satisfy them, it creates demand- and satisfying this demand increases the gross receipts for other people and businesses in communities. In turn, that creates further demand- which is what creates jobs.

[dionysus]

35. don't forget to mention the direct de-funding of SS aspect of your plan.

[depakid]

36. Can't seem to resist being obtuse, can you?

Another thing to think about- if people trusted this administration and the Democratic leadership to defend social security -and replace the monies for a time with receipts from, say, a financial transactions tax if they had credibility, your criticism would be far less an issue.

But they don't. Thanks to the Cat Food Commission. And so you're left without this option. Or apparently- any other means of increasing demand and improving people's live on Main Street.

Talk about shooting one's self in the foot.

And you wonder why people are ready to toss out a ton of Democrats come November.

[Yavin4]

38. Let Me Paint You A Picture

Imagine a secretary at an office. There's been several rounds of layoffs at her office. Several of her friends have been let go. Her husband has lost his job. She's the sole bread winner in the family at the moment, but there's rumors of even more layoffs. She's struggling to pay off the bills each month.

Now, if she gets this tax cut, she's going to go out and increase her spending? She's going to buy a new car? Or new clothes? Of course not. She's going to pay off her bills and save whatever is left because her husband is unemployed and she may get laid off.

Finally, if tax cuts create millions of new jobs, then why did the Bush admin have one of the worst job creation track records in history?

[ProSense]

32. That is not the problem with this proposal.

There are numerous ways to put money into the hands of people who will actually spend it. Depleting Social Security revenues is simply ludicrous.

Payroll Tax Holiday a Poor Stimulus Idea

"Making Work Pay" Credit a Better-Targeted Alternative

By Chye-Ching Huang

January 26, 2009

This week Senate Minority Leader Mitch McConnell suggested suspending the Social Security payroll tax for a period of time, as a stimulus measure. A payroll tax holiday, however, would both be costly — a two-month suspension could cost about $120 billion, for example<1> — and likely relatively ineffective as a stimulus measure. Public resources would be better spent on stimulus measures with a higher “bang for the buck,” such as the Making Work Pay tax cut that President-elect Obama has proposed.

Biggest Tax Benefits from Payroll Tax Holiday Would Go to Workers Least Likely to Spend Them

Economic stimulus measures aim to encourage an immediate increase in aggregate demand by boosting consumer spending. The most efficient way to boost consumer spending is to put money into the hands of people who will spend it quickly rather than save it; tax cuts focused on moderate- and low-income households are more effective as stimulus than tax cuts that are larger for people with higher incomes, because people at low-income levels spend a larger share of tax cuts they receive than people at higher income levels do.

A payroll tax holiday does not score well on this front — too little of the benefit goes to lower-income households struggling to make ends meet and too much goes to higher-income taxpayers, who are likely to save a significant fraction of any new resources they receive. Under the payroll tax, employees pay tax of 6.2 percent on earnings up to $106,800. So, for example, a worker earning $10,000 would receive a tax cut of just $103 from a two-month payroll tax holiday, while a worker earning ten times as much ($100,000) would receive a tax cut ten times as big — $1,030. Indeed, the highest-income fifth of households could receive more than half of the benefits that would go to workers from a two-month payroll tax holiday.<2>

A better way to boost consumer spending through a tax cut is President-elect Obama’s proposed Making Work Pay credit, which would offset the worker’s share of payroll taxes for the first $8,100 in earnings. Worth up to $500 per worker, it would cost about $70 billion in 2009. This is roughly equivalent to the revenue from a one-month payroll tax holiday.

The Making Work Pay credit would likely provide considerably greater bang for the buck than a payroll tax holiday for two reasons. First, a substantially larger share of the benefits would go to low- and moderate-income workers. Unlike the payroll tax holiday, the credit would provide the same benefit — $500 — to a worker earning $10,000 as to a worker earning $100,000.<3> Moreover, that $500 credit would far exceed what low-income workers would receive from a payroll tax holiday. A worker earning $10,000 would receive only $103 in tax benefits from a two-month tax holiday even though such a payroll tax holiday would be nearly twice as expensive. Indeed, for a worker to receive more from the employee share of a two-month payroll tax holiday than they would from the Making Work Pay credit, their income would have to exceed $48,387.

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This is one of those things people are pushing because they know damn well the rich will benefit the most. It also sets up a perfect opportunity for Republicans to attack Social Security.

[BzaDem]

40. There is no reason this proposal requires a depletion of Social Security revenues.

The proposal could simply be combined with a check from the general treasury to the trust fund to make up the entire difference.

[flpoljunkie]

41. Great point, ProSense. Obama's 'Make Work Pay' Tax Credit more stimulative than payroll tax holiday.

Apparently, the Make Work Pay Tax Credit is in effect for 2010, as well.

[BzaDem]

39. I don't think Ezra Klein is supporting this as good policy in the absolute.

I think there are thousands of policies Klein would rather enact than Daniels' policy. The problem is that Republicans have refused (and will continue to refuse) to allow any stimulus (tax cut or spending side). This is mainly because they want the economy to remain depressed, so they can win the Presidency in 2012. (It is also part ideology with respect to the spending side.)

This makes the mere idea that there could be a $500 billion stimulus that could actually pass as surprising. Of course, a payroll tax cut would be very inefficient stimulus, as much of it would be used as a way for customers to pay down additional debt that they wouldn't otherwise pay down. Only customers that actually spend more than they otherwise would have would increase demand. Direct spending (ensuring it is all spent, instead of some fraction spent) is much more efficient.

But we aren't making a choice between more efficient stimulus and less efficient stimulus -- we are making a choice between less efficient stimulus and no stimulus, which might leave the economy stagnant for years.

The problem of reducing Social Security funding could be easily fixed. The bill just provides for a check from the treasury to the Social Security trust fund, in the exact amount of the 1 year tax holiday. Done.