Tuesday, December 20, 2011

Dean Baker on why the payroll tax holiday is a problem

Following up on two earlier posts today, one quoting Dean Baker and the other on the payroll tax holiday, I see that Baker has commented on the payroll tax holiday! From Obama's stimulus failure Guardian 12/19/2011, where he puts it into the context of the longer reluctance of the Obama Administration to apply the level of stimulus needed to create a strong economic recovery:

As stimulus, this [the payroll tax holiday] is not an especially good measure. On a per-dollar basis, tax cuts will be much less effective, especially with people carrying so much debt, than direct spending. Furthermore, many of these tax dollars will go to better-off tax payers who are less willing to spend than moderate income families. The Making Work Pay tax credit was much better targeted.

Finally, there is zero reason that this tax cut should be tied to social security in any way. As it stands, the trust fund is held harmless because the lost tax revenue is reimbursed from general revenue. But why even raise this as a potential issue for social security; why not just give everyone a tax cut equal to 2 percent of their wages up to $110,000? The only reason to tie the tax cut to social security is if the intention is to raise issues about the social security tax at some future point.

The response of the Obama people to this complaint is that this is the only tax cut that the Republican Congress will approve and that we badly need the stimulus. The second claim is definitely true and the first one may well be also. But if that is the case, it only speaks to the incredible failure of this administration to define the agenda and speak honestly about the economy. It's not surprising that they don't have the political support for more effective stimulus when they abandoned the effort to make the case almost two years ago. [my emphasis]
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