Would a Payroll Tax Holiday Stimulate the Lame Duck?

[babylonsister]

Would a Payroll Tax Holiday Stimulate the Lame Duck?

Aug 13 2010, 1:45 PM ET | Comment


The White House is stuck.

There's no reason for consumer spending to grow now, demand for financial instruments is high, businesses won't lend, the official unemployment rate remains short of 10 percent, and the White House seems to have run out of big ideas. After November, Democrats and Republicans will debate the wisdom of extending the Bush-era tax cuts to the wealthy. But no other major policy proposals are percolating. The economy is job one, but the tool box is empty.

The administration worries that economic growth will remain anemic for years but feels boxed in by a political atmosphere that considers government spending to be toxic. The Federal Reserve acted tepidly this week, recognizing that the economy needs more money but that enough Fed governors remain worried about rapid inflation to prevent any drastic action by the monetary policy body. There will be no large Fed purchases of Treasury bonds or securities. As demand is further crimped by expectations turning to deflation, inflation of some sort is desperately needed.

Officials are dipping into already appropriated pools of money, like overflow from the TARP bailout, to expand programs aimed at fixing mortgages and keeping people from losing their homes. In the lame duck session, Democrats will try to extend the Bush-era tax cuts for families earning less than $250,000, resulting in a tax increase for those earning more. But the market, and corporations, already expect these measures, and their hiring and employment forecasts aren't getting sunnier. Centrist Democratic money types believe that businesses won't begin to hire until policy-makers provide certainty about deficit reduction. President Obama's task force won't report its recommendations until the end of the year.

A strange thought-fellow coalition has an idea: a payroll tax holiday. Different groups have different forms of the proposal: some of them would exempt different amounts of income from the Social Security tax, which is 6.2 percent on a worker's first $106,800 of income; some would go into effect immediately and last for a year, and others, for just six months. It would be stimulative, easy to implement, popular and would encourage job creation.

The White House declined to comment on whether economic advisers were considering such an idea, although an economist who consults with White House experts said that several officials are thinking through its implications.

more...

http://www.theatlantic.com/politics/archive/2010/08/would-a-payroll-tax-holiday-stimulate-the-lame-duck/61441/

[RC]

1. Tax Holidays are a dumb idea.

Low taxes are a major reason for this econometric mess we are in. Rescind bus$'s tax cuts and if corporation really want person-hood, tax them the same as people. That will take care of our money short fall.

[flpoljunkie]

2. Payroll tax holiday would be widespread, popular and stimulate our economy--altho, as you can see

below, not as stimulative as aid to state governments, infrastructure spending, unemployment benefits, or increased food stamps--the most stimulative. However, and most importantly, it could be done fairly quickly.

[customerserviceguy]

3. It'll be interesting to see how the "save Social Security" folks

respond to this idea. If anything will grease the skids under the demise of Social Security more than this, I'd be interested in hearing it.

The Repukes only wanted to privatize about 2% of the money that was going to SS, this would do it for all of it.

[flpoljunkie]

4. This would not be 'privatizing.' Budget Commission needs to lift ceiling, perhaps with donut hole

to shore up Social Security. I would think a 'donut hole' might appeal to the Republicans--since they put one into their 2004 unpaid for Medicare prescription drug program.

Our economy needs a jolt now and this would also make people feel better--which is important, as well.

[customerserviceguy]

5. It would look like 'privatizing' to me

If I got a holiday from Social Security taxes, I'd jack my 401K contributions by the amount saved in a heartbeat.

Hell, if we can avoid having FICA taxes raised another two percent after the Commission is done with its work, I'll 'privatize' that two percent by adding it to my 401K, and figuring I dodged a bullet. I'll probably need it, because the other bullet of raising the retirement age will probably hit me.

[flpoljunkie]

6. 'Looking like privatizing' is not privatizing. A payroll tax holiday is, in no way, privatizing.

[customerserviceguy]

7. It still undermines the financial solvency of the Social Security System

Just this month, for the first time, the system paid out more than it took in. During a payroll tax holiday, it will take in nothing, and pay out loads. Seems a bit destabilizing to me.

Or is it just when Republicans want to undermine the funding of Social Security that it's bad?