Which would be more effective in boosting employment, PAYROLL TAX CUTS or extension of INCOME TAX cuts for

[ProgressiveEconomist]

Which would be more effective in boosting employment, PAYROLL TAX CUTS or extension of INCOME TAX cu...

of INCOME TAX cuts for the top 2 percent of the income distribution?

I just can't understand how Republicans can argue that income tax cuts for the wealthy will trickle unemployment down, while direct payroll tax cuts that made up a third of the Administration's stimulus bill were "wasteful stimulus spending". Does this make sense to you?

It sure doesn't make sense to bearish NYU economist Nouriel Roubini (see the snippet below).

IMO, President Obama should take midterm election losses as a mandate to use the most cost-effective fiscal measures to boost employment DRAMATICALLY. Some economists have argued that the "largest middle class tax cut in history", a general payroll tax measure, ws not targeted sharply enough on job-creating businesses. But just letting those tax cuts expire while borrowing $700 billion for income tax cuts for the wealthy surely would be even LESS effective in boosting employment than retargeting say $250 billion in payroll tax cuts to small business job creators.

IMO, Democrats would be COMPLETELY justified by Tuesday's message from voters in using RECONCILIATION to pass extension of employment-boosting middle class payroll tax cuts, along with extension of income tax cuts for incomes below $250k, during the lame-duck session that begins in ten days.

WHAT'S YOUR OPINION?

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From http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091605846_pf.html :

"WHAT AMERICA NEEDS IS A PAYROLL TAX CUT

By Nouriel Roubini. Friday, September 17, 2010; A17

... In the midst of an election with crucial implications for its ability to govern, can the Obama administration reduce the likelihood of a 'double dip'? The administration knows that it needs to fashion a revenue-neutral fiscal stimulus that increases labor demand and consumption. Its proposal to make permanent a research and development tax credit that dates to the 1980s, and then to enact a temporary investment tax credit allowing firms to write down capital investments at 100 percent of cost, are welcome -- but too modest a cure for what ails the economy.

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years). Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. THAT HAS THE PROBLEM BACKWARD. ... To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do. President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. ...

Proportion is critical in designing the payroll tax cuts. Small and medium-size enterprises have had it rough the past three years. They are scrambling for operating capital as banks hold reserves tightly, and they face higher borrowing costs than large corporations when they do find willing lenders. To maximize the incentives for private-sector hiring, there should be sharper reductions to the payroll taxes paid by employers than for those paid by employees. ... This will counter the argument that the higher income taxes funding these payroll tax cuts will hurt the wealthy and small businesses (many of which are run by those same high-income individuals) and their willingness to hire. Moreover, any cut in the payroll tax reduces the costs of operation and labor for all businesses. ...Low-income workers have historically shown a much higher propensity to consume when given extra money, so the payroll tax cut should be designed to provide a larger-percentage break to those on the low end of the income scale compared with the upper middle class. ...

Nouriel Roubini, chairman of Roubini Global Economics and a professor at New York University's Stern School of Business, is the author of 'Crisis Economics: A Crash Course in the Future of Finance.'"

[Better Today]

1. Neither, we need stimulus, infrastructure spending in very large amounts.

[Make7]

+1

[ProgressiveEconomist]

6. you mean net employment costs and net wages hove NO EFFECT on employment? What's your evidence?

Potential employers are sitting on trillions of dollars in working capital. Unemployed people are reluctant to take jobs that reduce their take-home pay at their previous employer by more than a certain amount.

A carefully-designed payroll tax cut surely will induce some employers to hire by lowering their costs, and surely will induce some of the unemployed to quit looking and take what employers offer them. Thier return to work will fuel further expansion of the economy as they are enabled to satisfy some of their pent-up demand for cars, appliances, clothes, shoes, etc.

[Better Today]

9. The longer term effect will not be worth the short term effect.

Furthermore, it isn't payroll costs that are hindering hiring, it's the lack of goods leaving the shelves. All that lowering payroll taxes will do is to give the employers even more trillions to sit on. They won't hire any more, they don't need any more productivity than they are already getting.

[ProgressiveEconomist]

12. The best-designed payroll tax-cut plans apply ONLY to the portion of payroll that goes to net new

that goes to net new hires, so what you're suggesting cannot happen.

See, for example, http://economix.blogs.nytimes.com/2009/11/19/the-case-for-a-job-creation-tax-credit/

[Better Today]

16. Which means it will have zero effect because no one is going to hire

someone that they don't need even at 7.25/hr to save .55/hr.

[ProgressiveEconomist]

18. That may have been the situation in 2008-2009, but private sector jobs are growing now.

This proposal would make private-sector employment grow faster.

[Better Today]

23. You live in a different world than I do. There is no job growth around here

or in many areas of the US, add to that the fact that what jobs are coming up are low wages and part-time, yeah, not helpful, neither will be payroll tax breaks. If you want to believe that type of economic myth with regard to our current un- and under-employment issues, feel free. There may be a place and time when this would've worked but we are well past that at this point.

Besides our infrastructure sucks and we need the improvements.

[ProgressiveEconomist]

26. "You seem to live in a different world than I do." Yes--there's uncertainty in mine,

and willingness to consider new ideas from top economists like Roubini and Bishop.

[Better Today]

27. If you think this is a new idea, then you're way behind the times or new to economics.

[ProgressiveEconomist]

31. I meant "policy proposals", not "ideas". Obviously there are very few truly "new ideas"

[alanquatermass]

20. Amen, Better! The first stimulus...

-- didn't go NEARLY far enough.

I heard some dude on NPR the other night saying that what really needed (and still needs) to happen was large, MASSIVE spending on the part of the Federal Government... like 6 or 7 TRILLION dollars worth... enough to give a shot in the arm to the Economy in order to get people working again. The interviewer (Terry Gross?) asked him where this money was supposed to come from and the guy said, "Where? Us! We'd have to start printing it!"

He said the benefit would outweigh the cost by a HUGE margin.

[elleng]

2. They can't, and they don't!

[ProgressiveEconomist]

10. Politics is the art of the possible. IMO, more pure government spending is not possible

during the month-and-a-half lame duck session. Proposing it would play right into McConnell's, Boner's, and Ailes's hands.

But proposing employment-focused payroll tax cuts instead of giveaways to the wealthy would give Democrats a platform for exposing the plutocrtic agenda of the Rs.

I'm really disappointed with all of the responses so far but yours.. Thanks!

[elleng]

22. yvw

:fistbump:

[El Supremo]

3. Niether. Lowering the age for full Social Security benefits would.

Giving incentive for more older people to retire thus opening more jobs to younger people.

[ProgressiveEconomist]

24. Wouldn't new incentives to retire initially lower employment rather than raise it?

And why wouldn't many employers who still are strugglling just eliminate the positions retirees left behind?

[HereSince1628]

4. We need a heap'n help'n of DEMAND so's that trillion the financials

are sitting on can be used for production.

But to make it work for US unemployed, we need trade protection for the privateers and currency manipulators. I just can't see a right shifting House attempt trade protection, teabaggers or not.

[ProgressiveEconomist]

8. The best way to boost demand is to re-employ some of the unemployed, who've

been putting off buying cars, appliances, clothes, shoes, etc. bor TWO YEARS.

[ProgressiveEconomist]

37. The Bishop-Baritk plan could be fine-tuned to boost demand by incentivizing RAISES

for existing employees as well as jobs for new hires--see post #36 below.

[Curmudgeoness]

5. Neither will really matter. All that matters is demand for products

that a company produces. If they have demand, they will hire. If not, nothing will make them hire.

[ProgressiveEconomist]

7. See the end of post number 6, and read down in Roubini's snippet in the OP.

The best way to stimulate demand is to re-employ some of the unemplyed.

[BeFree]

11. housing

Each house built, I'd say, employs maybe 5 people for a year.

So, to re-employ 5 people build one house using just US made materials.

Sell it ala the Habitat for Humanity plan, and off we go.
Jobs for everyone and houses for everyone.

[ProgressiveEconomist]

14. Great idea for subsidized HFH-type housing, but bad for market-priced housing, IMO

There's too much supply on the market already.

[BeFree]

21. Is there?

Is it that no one can afford to buy? And how many homeless are there?

If we start a program making these jobs, the housing stock prices will decline.
And the banks will have to take the hit on the houses they own.

Imagine if the gov owned all the mtgs.. it would be like: so what, people will not be homeless, all houses will be filled. Private industry is in fail and the gov is now bailing them out. So, in effect its as if the gov already owns the stock and the middle man bakers are off loading their risks onto the gov.

And we have maybe millions of homeless and under housed.

[Curmudgeoness]

30. Read it all. I stick by my opinion that businesses will not hire

employees that they do not need, even if you take all the payroll taxes off the table for them. What is needed is demand for what these businesses are selling. This will happen as more people are employed. Catch 22 if you leave it all up to the private sector to create jobs.

If I have a business, and I am able to get everything done with five employees, and that is what I have afford to employ, then you cut my payroll taxes without increasing demand for my product, it is just a win-win for me. Less cost for the employees that I have and I don't hire more. I would not hire an additional employee just for a cut in tax. I will still be paying more out than I will save, and there is no benefit for me. I do not need that employee.

[ProgressiveEconomist]

32. True--not all businesses will avail themselves of targeted payroll tax cuts. But IMO

many businesses already hiring will hire more people than they would without the tax incentive.

You are correct that most businesses would not go from zero to 1 or 2 new hires (though some who were just at the margin of expanding their roster of employees would do so with the incentive.

But private sector businesses hired 160,000 net new employees just in October. The payroll tax incentive would move some of them from 1 to 2, 2 to 3, 5 to 7, etc.

[BzaDem]

13. They cannot use budget reconciliation to pass the tax cuts, since they never passed a budget. n/t

[ProgressiveEconomist]

17. Do you have a link?. Then whip the House and let Rs filibuster employment tax-cuts.

And maybe pass a budget already. Blue-dogs have been tamed by Tuesday's results, haven't they?

[ProgressiveEconomist]

19. Are you SURE there's no chance of reconciliation? Kevin Drum of MJ asks whether "last year's reconc...

"last year's reconciliation instructions (are) still valid until the end of the congressional session".

See http://motherjones.com/kevin-drum/2010/07/lame-duck-hysteria .

[David Zephyr]

15. Of the two, clearly cutting the payroll tax because it orbits around U.S. jobs.

No question.

Income tax includes not just wages, but dividends, capital gains, rents and royalites, etc. So cutting income tax is not something that orbits directly around jobs/employment.

Payroll tax is "payroll" tax. It orbits solely around jobs/employment.

So of the two choices you presented, one has the most immediate impact on job creation, job retention, and on small busineses here in the U.S.: the payroll tax.

[ProgressiveEconomist]

29. Thanks for a reply that makes good sense and good politics

[David Zephyr]

33. I like your thread. Wish we had more like these.

It's truly "General Discussion". I should do it more. :)

[ProgressiveEconomist]

34. Unfortunately, many people post after reading only the thread title. Look at the

timing of the first reply. Within SECONDS of a thoughtful post that took a good half-hour to write, I had the first of many replies from a poster who insisted the answer to my question (A or B) was ***C***, with no links to back up his or her position.

The thread soon became a tangle of off-topic BS. Of all the replies so far, only yours, mine and a couple of others have been on-topic!

A couple of years ago, I found DOZENS of thoughtful posts on DU every day. Now they're few and far between, IMO. IMO DU has been dumbed down severely by people with undifferentiated hostility to spread.

[Odin2005]

25. We Need WEALTH REDISTRIBUTION.

The increasing concentration of wealth among the Idle Rich that stuff the money in hedge funds and Swiss bank accounts since 1980 is the cause of most of our problems. That wealth needs to be put in the hands of working people that use it to buy things.

[ProgressiveEconomist]

28. Weive been getting it ever since 'Reagan Demcrats' first were bamboozled, butit's been going the wro...

the wrong way--UP not DOWN.

Most likely the top 2 percent of the income distribution are about to get an average $100,000 a year payday--with Treaury borrowing they'll be paying less and less of, and we'll be paying more and more.

[TBF]

47. +1 nt

[ProgressiveEconomist]

35. Have Rs offered ANY plans for boosting employment? No, they're taling about HEALTHCARE REFORM REPEA...

HEALTHCARE REFORM REPEAL, doing exactly what they say (wrongly) Obama. did. Obama pushed through an economic stimulus bill that turned private sector job grouwth positive in record time. Then he started using his political capital and Blue Dog margins of majorities to pass the biggest healthcare reform since Medicare.

In contrast, the Rs campaign refrain was WHERE ARE THE JOBS? But after they increased their presence in the Sanate by 6 seats, and in the House by 60-some seats, they have been SILENT on job creation.

IMO, the WH and Democrats in the Senate and House should IMMEDIATELY adopt the slogan, "WHERE WILL THE JOBS COME FROM? Let me tell you, HERE'S WHERE THE JOBS WILL COME FROM", and outline a massive payroll tax cut plan along with other measures.

[ProgressiveEconomist]

36. HERE"S WHERE THE JOBS COULD COME FROM: A 15 cent payroll tax rebate to employers

for each net dollar increase in 2011 payroll expenditures, compared to the companiy's 2009 payroll spending, and a 15 percent payroll tax rebate for each net dollar increase in 2012 payroll, compared to its 2010 spending.

Economist John Bishop of Cornell University estimated that such a plan would cost $6,000 per net new hire (see http://economix.blogs.nytimes.com/2009/11/19/the-case-for-a-job-creation-tax-credit/ ).

A massive new program authorizing, say, 120 billion dollars over two years, could help MILLIONS of the unemployed and under-employed. In addition, it could induce employers at long last to give raises to existing employees: Payroll spending increases when you give a worker a raise as well as when you hire a new employee.

It surely would be essential to cap the annual salry level for any employee whose raise would be eligible for the rebate. Otherwise, many pathologically greedy executives would just give THEMSELVES raises, and forget about theirlong-suffering entry-level and lower-middle-class employees.

Giving raises to employees with high marginal propensities to consume would BOOST DEMAND.

And giving the rebate directly to employers would SILENCE Rs who would rather give income tax cuts to the wealthy than boost employment directly. A payroll tax cut of this design would be a job-creating substitute for the job-destroying Bush tax cut to the wealthy, who would be the maindirect beneficiaries of either a Bush tax giveaway extension or this paryroll tax plan.

[muriel_volestrangler]

38. It makes a lot of sense

The Bishop plan looks as though it would get the most new jobs per dollar, because it targets the companies that increase employment directly; but the Noubini one might politically be better - most people would see some benefit to themselves directly, and their increased spending would help grow the economy and thus jobs.

And it's a lot easier to take political credit for a decision that put money in voters' pockets, rather than a measure which changes the tax bills of companies (which most people never know about); and for which you have to say "the reason employment grew was our payroll credit" and your opponents then say "it would have come down anyway" (especially if your opponents are about to take over Congress - they'll try to take credit for the results of anything done in the lame duck Congress if they're not unambiguously tied to the make duck measure).

[ProgressiveEconomist]

41. I omitted one key detail from the OP that addresses your point: RAISES for existing

employees as well as net new hires would be leveraged by a variant of the Bishop/Bartik plan. These raises would go to entry-level and lower-middle class small-business employees and be leveraged into hundreds of billions of dollars as small biz employers have to pay 85 cents of their own money to get 15 cents of government money. See my much-more coherent repost and re-imaginiang of this thread, at http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9497641 .

If you re-post your question there, I'll give you a more thorough reply.

[muriel_volestrangler]

42. I don't think I actually have a question, just an opinion

Which is that either Bishop plan, or the Roubini one, would be a good idea for the economy. I suspect that the Bishop one would have the better effect on job creation, because it's targeted at any firm (no matter what its size) that employs more people in 2010 than 2009, and more in 2011 than in 2009.

In contrast, Roubini's plan cuts the employer and employee payroll tax rates for all existing and new jobs (again, for any size of firm). This will benefit the employees, who will then spend the money in the economy, and will, to a lesser extent than the Bishop plan, encourage the employers to hire more.

What I was saying was that, in my opinion, the Roubini plan would be better for a lame duck Democratic House. If they pass that, they can say, 2 years later, "it was us who cut your payroll taxes", and voters will see that as a good thing. The bishop plan, however, doesn't give a visible, tangible benefit to voters that can be ascribed to it and nothing else; it will increase employment, but the time during which employment will increase will be under the Republican House. So, in 2 years time, Democrats can try to run saying "the payroll tax credit for creating new jobs is what increased employment", but the Repubs will counter with "no, employment increased because of (whatever policies, clever or dumb, the Republicans implement after January)". And no-one will be able to say definitively what caused the increase in jobs. So the Democrats wouldn't end up with much credit for the Bishop plan.

While the Bishop plan is a good one for the country, politically it's best done at the start of a Congress, so that you can take the credit for it working. If you do it just before the other guys take over, there's a high likelihood the voters will give them the credit for it working.

[deacon]

39. Have the tax cuts created any jobs? They've been in place a long time. n/t

[ProgressiveEconomist]

40. They came early in Dubya's maladministration which in 8 years created only 1 million net

new jobs (compared to 23 million for his predecessor, who RAISED income taxes on the wealthy.

Also, Dubya talked down the economy during his first campaign to engender a recession that began in March 2001, and went out with another, deeper recession.

I don't know af any credible studies of your question, but it doesn't look good for Dubya's tax cut from the perspective of economic history.

[MH1]

43. Of the two options, payroll tax cuts in the lower income tiers

Cutting my payroll tax won't influence my spending.

Cutting the payroll taxes of lots of other people WILL cause them to spend more, which drives demand, which drives production, which drives jobs.

It is so fucking simple that it amazes me that so many people are bamboozled into not understanding it.

[MadHound]

44. Tax cuts, of any kind, are the worst form of economic stimulus going

Due to the money multiplier effect, for every dollar you put out there in tax cuts, you only get $1.06 in stimulus back.

The most effective forms of economic stimulus, job creation programs and increasing food stamps. Again, due to the money multiplier effect, for every dollar you put out in either job creation or food stamps, you get $1.87 back.

It is time to let all these Bush era tax cuts expire because they are costing us too much and delivering too little in return. Instead we need to create a massive jobs creation program to get this economy moving again.

It's well known, it's really simple, it's past time we did it.

[NNN0LHI]

45. Best way to boost job growth is to cut the workweek from 40 hours to 32 for the same pay

I experienced this and have seen the results. Back in 1979 the UAW seen this day coming and began negotiating a 4 day workweek and had began implementing it slowly. Started off with one extra paid day off per month and then we went up to two the following contract. We eventually would have ended up with a 32-hour workweek. As would have everyone else eventually as the UAW contracts set the pattern for pay and benefits for every other American worker. When we got a raise, so did everyone else. When we started taking pay cuts so did everyone else.

When this plan was being implemented incrementally the American auto industry was hiring just about anyone who came through the door. We couldn't get the new people hired and trained fast enough to do it all at once. That is why it had to be done incrementally. I can remember those days well because I was working there then.

Thats what we need to do.

Don

[TBF]

46. Possibly tax credits for keeping jobs in the country -

lowering the taxes on individual income has absolutely nothing to do with job creation on the level that we need. It may cause a few individuals to raise their individual hiring (maybe have the maids come twice a week instead of once, that sort of thing)... but in order to spur corporations to do massive hiring I believe the easiest way would be tax credits that reward job creation in this country specifically.

[mmonk]

48. Neither. Demand determines employment.

The rest is mumbo jumbo. The year I was born the top marginal tax rate was 91% with an effective tax rate of 87%.