Tax-Side Stimulus
Looks like the powers that be are finally starting to try to frame additional economic stimulus measures, specifically a tax credit to incentivize new hiring:
One version of the approach, to be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, would give employers a two-year tax credit if they increased the size of their work force or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker’s salary.
“It’s beautiful if it can be timed at a dire moment like this, when unemployment is way too high and appears to be going somewhat higher,” said Mr. Phelps, an economics professor at Columbia, lamenting that the president dropped it from the $787 billion stimulus plan approved in February. “But it’s a pity that this wasn’t done a year ago.”
This seems like an okay idea to me, but dollar-per-dollar I don’t see any real reason to think that this relatively complicated scheme is in any real way preferable to just temporarily reducing payroll taxes. Among other things, a new jobs tax credit is somewhat pointlessly asymmetrical between creating incentives to reduce layoffs and creating incentives to hire new people. It also seems to me that it would be desirable to do something that can be seen as offering help to almost all families, rather than to something so narrowly targeted.
It also strikes me that some old-fashioned public works schemes could do some good here. There are cracked sidewalks in the United States of America and roads with potholes in them. There are also unemployed people who until recently were involved in the building trades. Is it really so impossible to hire those people to fix the potholes and the cracked sidewalks? This seems like common sense to me.
25 Responses to “Tax-Side Stimulus”
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October 8th, 2009 at 12:32 pm
Well, then conservatives will whine about corruption, graft, und so weiter.
They should go look at Japan!
October 8th, 2009 at 12:34 pm
This reminds me of something. Oh, yeah. Barack Obama got AIDS from a monkey. The monkey was Michelle Obama’s brother!
October 8th, 2009 at 12:34 pm
Won’t happen. The left fears a temporary cut in payroll (social security) taxes may put social security at risk. The right fears a temporary cut in payroll taxes may put this highly regressive source of revenues to pay government operating expenses (payroll taxes have far exceeded social security outlays since social security “reform” was adopted when Reagan was President) at risk. The public may like the “temporary” cut too much.
October 8th, 2009 at 12:50 pm
Goddammit Matt, you know that it’s socialism unless it involves large companies who hired lobbyists making obscene profits off of non-competitive government contracts (freedom).
October 8th, 2009 at 12:52 pm
I don’t actually believe that tax-based schemes work. They always seem to be excuses not to do anything real, and they
Matt is right. This countrys’s infastructure is falling apart. Telephone polls are barely standing. Roads are cracked and pitted all to hell. We’re living in a world created by our grandparents, and neither us nor our parents have significantly contributed to it. This must be what rome felt like after the empire fell: Evidence of former greatness all around you, but that evidence just seems to underscore just how badly we’ve allowed things to get. I was in Schenectady the other day, and half of state street looked like it was about to collapse. Some buildings quite literally have buckling rooftops and walls that you could kick down.
Instead of shell games and financial trickery, lets do something real for once.
October 8th, 2009 at 1:03 pm
I guess filling potholds is common sense. But in three seconds you can come up with all sorts of reasons that administering such a program would be a nightmare. Think of the incentives: As a city manager, I might have any number of priorities. Servicing debt, keeping my schools heated, etc. Along comes a project that pays me to hire people to fill potholes. Now, if pothole filling was the last thing I cut from my budget to make ends meet, the result might be that I add the federal funds to my budget and hire some people to fill the potholes. If, on the other hand, heat for the school were the last thing I cut, here’s what I do: I amend my budget to zero out any pothole filling I was planning to do. I lay off the pothole fillers. I switch the money to heating. then I apply for the federal funds, get it, and hire the pothole people back. Net number of pothole fillers hired: Zero.
Granted, you can put some administrative things in place to avoid this problem. But that costs money, and takes a tone of time. Suddenly, the plan to “just fill potholes” gets some potholes filled, but it’s not nearly as easy or as efficient as you hoped.
October 8th, 2009 at 1:17 pm
The National Parks have a lot of deferred maintenance that would also benefit from a WPA style direct employment program.
October 8th, 2009 at 1:26 pm
What’s needed is aid to the state and local goivernments. Laying off teachers at a time like this is insanity. As long as state governemnts can’t deficit spend the feds have to back them up.
A payroll holiday could have been done in January but now there is too much chance it wouldn’t be reinstated next year.
Tax credits to businesses are a crock. They are gamed and don’t really work.
We need more one-time stimulus payments and aid to the states, something Queen Olympia insisted be taken out last time.
October 8th, 2009 at 1:28 pm
STOP. That’s your first problem right there.
October 8th, 2009 at 1:35 pm
If you are going all WPA – Manzannar is still one guard tower and a small shrine. The problem is that it is 4 hours from Palmdale, 5 from Riverside and 6 from Las Vegas. Are you going to convince those construction workers to spend the winter in tents?
October 8th, 2009 at 1:46 pm
We could also throw up tariffs on say, automobiles. Yes, I uttered the unutterable word. Tariffs. Split up the market 70-30 in our favor. The foreign companies can compete like hell for 30% of our market. That’s it. We compete for the rest. Seems eminently fair to me. It’s our country after all, and hey, we own automobile companies. You and I. Get smart, and get ruthless.
There’s millions of jobs saved or created right there. And if we don’t do this, China WILL take over a majority of our auto market over the next 10-15 years. Do you want the Chinese to take over? Do we want to make the Chinese our overlords because we believe getting robbed as a people is a SUPER FANTASTIC IDEA? Because some psycho economists out of Chicago have convinced us we like to take it up the ass?
Potholes and cracked sidewalks? How about immense desalination plants off the coast of California complimented by a vast network of aqueducts bringing fresh water to the entire West? How about mandatory bike lanes Matt? Everywhere. EVERYWHERE! How many jobs is that? How about a roundabouts project, nationwide? How many jobs is that? As many jobs as you want to create, I would suspect, and pretty much for all time, considering we have an almost infinite amount of stupid intersections in this country.
Hey! How about wind and solar? Remember those sad fellas? A National Smart Grid? Blah blah blah. Fuck, there are so many things we could do, including letting loose on our country gangs of construction workers -working good paying and PATRIOTIC jobs repairing our crumbling infrastructure, which is necessary, as we all know, to ensure our future National Security.
But no, we voluntarily work through and therefor get robbed by MIDDLEMEN, foreign and domestic. As a lifetime gambler, and a moderately successful one, I can tell you without reservation, gamblers who rely on middlemen, in this case bookies and casinos, to make their investments, ALWAYS LOSE. I know a million sad stories. I know, as surely as I know the sun will set tonight -and on America soon if don’t make dramatic changes- YOU CAN’T BEAT THE VIG.
October 8th, 2009 at 2:07 pm
Unfortunately, it’s the municipal public sector unions that would scream if we allocated unemployed laborers to tasks for which existing city workers can get time and a half and minimum call-out pay.
October 8th, 2009 at 2:13 pm
soullite@5, you make an excellent and rarely discussed point…we’re driving now on bridges and roads that were built 50 and 60 years ago and designed with 50-60 year lifespans. Any idea what the top marginal tax rate was back then…?
October 8th, 2009 at 2:22 pm
The foreign companies can compete like hell for 30% of our market. That’s it. We compete for the rest. Seems eminently fair to me.
It’s not very fair if you’re a non-rich person who needs a new car.
October 8th, 2009 at 3:04 pm
But no, we voluntarily work through and therefor get robbed by MIDDLEMEN, foreign and domestic.
Well, I don’t want war, so the foreign middlemen can be ignored for now, but I agree that all the middlemen that are between the gov’t and the worker should be forced to become gov’t or worker. Then, of course, there is no longer gov’t and worker either.
It’s called “The Dictatorship of the Proletariat”
YOU CAN’T BEAT THE VIG.
Sums up Capitalism.
October 8th, 2009 at 3:13 pm
There is no longer time to worry about potholes or bike lanes or even healthcare.
This country is going down, collapsing into fiscal and monetary hell, in no more than 5-10 years. This is why most of Baucuscare implementation is delayed until 2012-15. Because by then it won’t matter anymore.
The only important question is what comes out the other side, fascism or socialism. If the socialists win, then maybe we can move back to a mixed economy in a generation.
But if you keep playing their game in their frame, keep pretending the US is a social democracy, then the fascists will win.
October 8th, 2009 at 7:28 pm
Matt:
You say the following:
“This seems like an okay idea to me, but dollar-per-dollar I don’t see any real reason to think that this relatively complicated scheme is in any real way preferable to just temporarily reducing payroll taxes. Among other things, a new jobs tax credit is somewhat pointlessly asymmetrical between creating incentives to reduce layoffs and creating incentives to hire new people.”
There is one very good reason to try to limit an employer tax credit to new jobs (or alternatively, to jobs over 90% or 95% of the base year): such a limit significantly reduces the costs of the tax credit proposals. Under plausible assumptions, the cost per job created of a marginal employment tax credit, that focuses the credit only on jobs added (or on jobs above 90% or 95% Of the base year), are far lower than the cost per job created of temporarily reducing payroll taxes.
A temporary cut in payroll taxes applies to all employment. This means that most of the employment to which this tax cut applies would have occurred anyway. This increases the costs of the temporary cut per job created.
A tax credit only applied to new jobs also provides credits to some new jobs that would have been created anyway. However, the number of jobs created, relative to the number of jobs receiving the credit, is probably much greater under the marginal employment tax credit approach.
It is true that a tax credit applied only to new jobs does not provide incentives for employment retention. Therefore, a temporary payroll tax cut will provides incentives for greater employment for more employers, as it will include those employers that are cutting jobs. However, the costs are driven up by far more than the job creation effects.
If it is deemed desirable to provide more incentives for employment retention, it would be more cost-effective to base the credit on employment relative to 90% or 95% of the base year rather than to provide a temporary payroll tax cut for all employment.
October 8th, 2009 at 11:49 pm
Regarding payroll taxes and public works: no reason why you can’t do both. Progressivizing the payroll tax would make it cheaper to hire most workers (while disincentivizing megasalaries for executives) without damaging Social Security’s actuarial tables, and establishing job insurance gives you a self-funding jobs program.
Max @ 11: while I’m not a free trader, I would point out one problem: all of the Big Three have huge overseas operations, and all of the foreign companies have production facilities in the U.S too. How exactly do we define what’s an American car? How do we weigh parts-produced-here versus assembled-here?
Mike @ 12: actually, if you design the public works projects to be non-competitive (the WPA for example would only accept projects that local public works depts didn’t do), and you allow public works employees to join municipal public sector unions, you can bring the unions on board without much trouble.
October 9th, 2009 at 2:52 am
@18 StevenAttewell: “the Big Three have huge overseas operations, and all of the foreign companies have production facilities in the U.S too. How exactly do we define what’s an American car?”
I know. GM would be gone if it weren’t for its foreign divisions. That is the only thing that saved them. But then again, if they had an more space to operate in the homeland, overseas divisions wouldn’t be so important.
It is an incredibly complex question. But even now in the “Free Trading World” there are differing rules, roadblocks, quotas, obstructions, all over the place. It’s not like everybody is Free Trading. And the thing gets me; at this point in time, China is just starting to put together a legal structure. I mean, they are a country without lawyers! Basically. And yet they are whipping our ass in complicated trade agreements and contracts involving all sorts of international and national legalize. We have 55% of the world’s lawyers, and we pump them out at a rate of 45,000 a year. You would think, as Nation, we could never possibly get bamboozled. Yet we have become masters of the self-bamboozle.
I don’t know how you do it Steven, but I’ve felt strongly about this for thirty years. I never understood why we continually kept volunteering, as a Nation, over and over, to ship our production to foreign lands. To cede to other countries our TRUE power! Any nation’s true power. If we don’t throw barriers of some kind, UP, we are done. That much I am sure of.
By the way, I appreciate the important work you are doing. I think we are almost on the exact same page on almost all things. I wish you well in your endeavors.
October 9th, 2009 at 3:01 am
How about some more money for states? Entire universities in CA may well shut next year if there isn’t more federal money that comes in.
October 9th, 2009 at 3:17 am
@14 Jasper: “It’s not very fair if you’re a non-rich person who needs a new car.”
Jasper, you and I and every American owns a piece of two of the three “big” auto makers that are left in this country. We the People, of the United States of America, own General Motors.
If we work together, I think it is a 100% done deal that we could buy American cars that were not only top quality but pretty goddamn cheap. The key, of course, is working together, something Americans no longer believe in.
October 9th, 2009 at 3:31 am
@20 The Lorax: “How about some more money for states? Entire universities in CA may well shut next year if there isn’t more federal money that comes in.”
A large part of the stimulus was essentially a bailout of States. That money is getting burned up fast. I fret for California. It’s not just the universities that might shut down, but whole sections of the state.
It’s inconceivable but I think it is coming down to two choices, the Federal Government takes over California, almost like nationalizing a bank, cleans it up, especially its legislative structure, and then hands it back. Or we let it devolve into chaos.
October 9th, 2009 at 8:44 am
We were talking about a payroll tax cut about a year ago.
We could have avoided this entire year of misery and pain by implementing the payroll tax cut.
October 9th, 2009 at 9:38 am
I would rather see the payroll tax permanently eliminated rather than temporarily cut. Replace it through the income tax, making it more progressive at the top end if you like.
I know payroll taxes are supposed to self-fund Social Security and Medicare; but taxpayers are on the hook for the long-term liabilities of those anyway, so why not stop pretending?
Eliminating the 15% tax on employment would make hiring people cheaper, and would provide a boost to the typical worker’s take home pay, too (assuming a progressive income tax that makes up for the lost revenue).
October 12th, 2009 at 12:48 am
There are interstate bearing bridges that fall the fuck down with cars on them and people in those cars in states whose governors have been running for the Republican nomination for 7 years.