Can someone explain to me how cutting payroll taxes is supposed to create jobs?

[garybeck]

Maybe I'm just missing something.

I understand there are several types of payroll taxes, but essentially, cutting them means more money in people's pockets (both workers and employers).

So isn't this argument nothing more than trickle down economics? by cutting the payroll taxes and expecting it to create jobs, isn't Obama trying to sell trickle down economics to us?

I thought Democrats (and most economists) reject the trickle down theory.

What exactly is the theory that the payroll tax cut will create jobs? Is it the same trickle down theory the republicans have been pushing for decades, under a slightly different disguise, or is there some nuance I'm missing?

[McCamy Taylor]

1. Cutting taxes is election year politics.

[garybeck]

3. So you're saying it's complete BS and Obama doesn't even think it will create jobs.

[Cleita]

2. My opinion, and that's all it is, is if you

give employers a reason to reduce wages, they will pay less over time. Sure the employees, who benefit from the extra wages will have more money in their pockets, however new employees will earn less because employers will only pay enough to cover P/R taxes but not more.

[elleng]

4. Mistaken understanding.

Trickle-down economics refers to the policy of providing across the board tax cuts or benefits to businesses, such as tax breaks, in the belief that this will indirectly benefit the broad population, thus 'trickle down.'

Tax cuts to the populace puts money in our pockets, encouraging spending which helps businesses provide jobs.

[jmowreader]

12. In theory that's true, but practice says something different

The only way spending creates jobs is if it's sustained and heavy enough that a business's current staff can't handle it.

Let's throw out an easy example: The government has $15 billion they want to use to create jobs. If they spend it on infrastructure, jobs will be created. If they give a tax cut of $100 to every American taxpayer, and it gets spread through the year, AND if there are 150 million taxpayers, each person will see his taxes go down by $2 per week, or $4 per two-week pay period. I wouldn't even NOTICE a $4 increase in my pay, and I'm not the best-paid person on the block.

[hfojvt]

26. no you are mistaken

trickle down was one of the arguments in favor of the Reagan tax cuts, which were "across the board" cuts to the PERSONAL income tax. In practice though, "across the board" mostly ended up being "big cuts to the top rate"

[sabrina 1]

55. So, what jobs will be created by this 'holiday tax cut'?

[Unvanguard]

5. Cutting payroll taxes increases consumption, which stimulates the economy.

Pretty straightforward Keynesianism (though not the most direct or effective means of doing it.)

[Hawkowl]

6. Yes. It helps us consume crap from China at Walmart.

Or it offsets the rise in inflation by the Fed's easy money policy. For example, inflation up 4%, cut payroll taxes by 4% = THE SAME REAL CONSUMPTION!

TA DA! You win a weakened Social Security system while consuming the same amount of crap with no new jobs! :eyes:

[Unvanguard]

14. A loose monetary policy is not inflationary in a recession.

But that's really beside the point, since the payroll tax cut has nothing to do with Fed policy.

Social Security is not weakened by a temporary reduction in the payroll tax, when that cut is not paid for with Social Security funds.

[Hawkowl]

16. Inflation is evidenced in the commodity markets

That's first of all. If you don't think you can't get inflation in a recession you missed the Jimmy Carter recession.

Second, a reduced payroll tax takes money from the Social Security fund. The difference is made up from general revenue (there isn't any additional revenue) so it is borrowed, i.e; it increases the deficit.

So monetarily Social Security may not be weakened. However, POLITICALLY, it is damn near catastrophic because now, instead of REDUCING the deficit, Social Security INCREASES the deficit and is under political pressure to be cut.

Do you get it yet?

[Unvanguard]

49. You can get inflation in a recession when you have high inflationary expectations to begin with.

We don't. The so-called "Jimmy Carter recession" is not on point. And fluctuations in commodity markets don't have much to do with monetary policy.

Even with the payroll tax cut, Social Security doesn't increase the deficit: the payroll tax cut does.

[Hawkowl]

58. Commodity Market

C'mon. You can't be serious with the "fluctuations in commodity markets don't have much to do with monetary policy." comment?

Since the repeal of Glass-Steagall there is an open DIRECT pipeline from the Fed to the commodity markets via the Wall Street banks proprietary trading ops.

1) The Fed pumps in "liquidity" (free money or no interest loans) to say Bank of America

2) BofA then takes a portion of its free money and leverages up 10x by buying futures on the commodity exchanges

3) All the other financial institutions do similarly

4) Voila! A giant price spike in commodities

5) Never take delivery of said commodities, simply preserve the bubble and roll over the contracts to a future date

6) Rinse & repeat as often as necessary


So now REAL agricultural and industrial products input costs rise and are passed on to consumers and businesses.

So inflation has been generated NOT by an increased demand for agricultural and industrial products but by a loose monetary policy of the central bank even though total demand and total real (nominal adjusted for inflation) production has decreased (recession).

This is our current situation: Rising nominal prices with a falling demand.

[Unvanguard]

65. Ah, so it's a conspiracy by banks to create a commodity bubble.

Okay.

[Hawkowl]

70. It's not a conspiracy

It is simple profit seeking behavior! Did you get your economics education only from CNBC? You've gotten enough free lessons here today. I suggest paying someone to tutor you from now on.

[stockholmer]

17. the very fact that real inflation is growing at an annual rate of 9 to 11% (not the ridiculously

low-balled and manipulated rate of 3 to 4% claimed by the Fed) WHILST treasury rates are at 50 year lows undermines the foundation of your 'loose monetary policy is not inflationary in a recession' claim.

Moreover, if you simply adjust for inflation (even using the fed's own understated number), the US GDP growth has been NEGATIVE since 2008.

Real and 'official' inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts

Real and 'official' GDP data:

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

As to your claim that the "cut is not paid for with Social Security funds" , all i can say is that you can't have it both ways. If the payroll tax makes SS and Medicare 'self-sustaining' and the trust fund is 'independent' of any other US government debt (a premiss I vigorously dispute), then taking half of the funding source IS most definitely a threat. If you say that these funds will be paid back by the general fund, then you admit that the trust fund is indeed composed of IOU's (a premiss I completely agree to), and that therefore the trust is indeed NOT independent of the other debts incurred by the US goverment.

When the assets of the US are liquidated due to systemic debt/currency collapse via unlimited expansion of the US printed/assigned dollar supply, the 'trust fund' will NOT be set aside by the creditors who are holding trillions of semi-worthless debt instruments known as US Treasuries.

[BzaDem]

20. Every economic premise in that post is absurd.

The idea that "real inflation" is 9-11% is absolutely absurd. Furthermore, we will not have a debt crisis OR a currency collapse in this country when we are a trillion below our economic capacity. It literally cannot happen. You cannot get demand-pull inflation during a collapse in aggregate demand. This is textbook macroeconomics.

Markets are banging at the door trying to shovel all their money into US treasuries. We can borrow for 30 years at 3.25 percent! We can borrow money for 10 years at 1.92 percent! If markets thought we were going to see 9-11 percent inflation (either now or in the future), why would they be shoveling so much money at us at negligible locked-in non-inflation-adjusted rates for decades?

Your predictions are exactly the predictions that Austrian economics makes. And it is harder to find a theory more discredited than Austrian economics.

[stockholmer]

22. bollocks, Keynesian and neo-classical (Chicago School) economics have been

thoroughly discredited by the real world events of the last 30 plus years. If you think that the real rate of monetary inflation is only 3 or 4%, then you are simply delusional. wishing something so doesn't make it so. The M1, M2, M3, and other forms of debt-based money supply have exploded since 1980. http://nowandfutures.com/key_stats.html#total_money http://www.shadowstats.com/alternate_data/money-supply-charts http://www.youtube.com/watch?v=qr235Q1SEIo

The only reason that big pools of capital are flowing to US treasures are due to a 'perceived' flight to safety as the entire global system collapses. The US will not be immune. If you think so, all I have to say is wait and see. I will proved right, and we all will suffer under the madness of the systemic controllers of the global banking system. I do not want this happen, but dated, discredited Keynesian arguments as to causation and prescriptive cures are simply a day late and a dollar short (times trillions).

You really need to go brush up on Frederic Bastiat's theory of 'opportunity costs' vis-a-vis government mal-investment (which leads to the law of unintended consequences coming to the fore), as well as Henry Hazlitt's withering critique of Keynesianism in his "The Critics of Keynesian Economics" http://ebookee.org/The-Critics-of-Keynesian-Economics_1207170.html.

----------------------------------------------------------------------------------
Here is a great article on why a massive amount of inflation is already baked into the cake (regardless of deflationary pressures in many sub-sectors)

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html
-----------------------------------------------------------------------------------


Dr. Steen Keen from Australia also goes into great length on the failures of neo classicism in his excellent site Debtwatch. http://www.debtdeflation.com/blogs/

Keen in an interview

http://www.youtube.com/watch?v=3qo3t8EBNSg

Here is a link to his book 'Debunking Economics'

http://ebooksfreedownload.org/2011/08/steve-keen-%E2%80%93-debunking-economics-the-naked-emperor-of-the-social-sciences.html

--------------------------------------------------

Why Paul Krugman Is Wrong on the Austrians (I post this more as a critique of Krugman's methodology than as a cheerleader for the Austrian school)

http://whiskeyandgunpowder.com/why-paul-krugman-is-wrong-on-the-austrians/

------------------------------------------------

I would love to see from links from you showing Keynesians and Neo-classicals effectively discrediting my referenced economists, including the Austrian school.

I truly think you are co-mingling Austrian thought with neo-classicists such as Milton Friedman. Those 2 are profoundly different on many core issues.

Here are 2 articles discussing this very subject.

http://www.lewrockwell.com/rothbard/rothbard43.html

http://www.auburn.edu/~garriro/fm2friedman.htm

[BzaDem]

74. "The M1, M2, M3, and other forms of debt-based money supply have exploded since 1980."

Yes, and actual inflation (notwithstanding your nonsensical numbers) is around 2-3%. It could not possibly be 9-11% -- that would mean that real GDP has collapsed at a rate of 8% for the last several years. The idea that inflation is currently 9-11% is just as credible as the notion that we never landed on the moon.

Furthermore, the money supply by itself says NOTHING about inflation. To find out about inflation, you need to look at the money supply and money DEMAND. If the demand for holding cash skyrockets, and the supply of said currency skyrockets right along with it, price levels stay the SAME. Keeping of the supply constant in the face of skyrocketing demand for cash causes nothing but DEFLATION. Fortunately, we have people running the Fed who (despite all their faults) decided to do everything they possibly could to prevent the disastrous tightening that occurred in the middle of the great depression in the 30s (when the demand for holding cash similarly skyrocketed).

For example, if the Fed decided to print 10 trillion tomorrow and put it in a vault, nothing would happen to the price level, because no additional money is going into circulation. For the price level to rise, aggregate DEMAND has to rise. No amount of money printing can cause inflation unless aggregate demand rises (i.e. demand for cash does not rise) along with it. So looking at the supply alone (without looking at demand) is meaningless. It is a hallmark of Austrian economics, but absolutely meaningless. That's why the government can borrow at 3.25% a year for 30 years.

Much of the substance in your links are nothing but a bunch of Austrian goldbuggery nonsense (whether or not the authors of the links admit it).

Your "flight to safety" argument might explain a low 1 year interest rate. They do not explain a decades-low 30-year interest rate. The market is taking your theory and throwing it in the trash. People with money are not just trying to shovel us money temporarily -- they are trying to shovel us money for 30 years at an extremely low locked-in non-inflation-indexed rate of 3.25 percent.

[Unvanguard]

50. If inflation were that high, the interest rates on Treasury bonds would be way up.

Not the real rate, but the nominal rate. Otherwise, investors would effectively be throwing away money. But they aren't. Maybe it's because US investors aren't big fans of Austrian economics. :shrug:

Edit: Actually, we'd probably have hyperinflation, given that the Fed would have to expand the monetary base an infinite amount to keep up with borrowers who want free money. And that would cycle, of course. Your currency still has non-trivial value, so you're wrong.

[sabrina 1]

56. But it will increase the debt, won't it?

I thought Debt reduction was the goal.

[Hawkowl]

62. That is complicated

Inflation actually makes debt cheaper. Deflation makes debt more expensive and can lock an economy into a deflationary depression. Deflation literally TERRIFIES the Fed. Irving Fisher is the seminal economist on this type of crisis written around the Great Depression.

Debt reduction is a long term goal. Trying to institute debt reduction in the short term through austerity measures will crash an economy and insure that debts will NEVER be paid in full. This is happening to Greece right now. After austerity measures were imposed, GDP fell from a predicted -5.5 % to a -7.3% (quarter to quarter at an annual rate) and it is accelerating. It is unsustainable and they will have to default, meaning their lenders are going to take it in the shorts.

[sabrina 1]

68. Well, I agree regarding the failed 'austerity' programs forced on

Europe by the IMF. But how has this tax holiday contributed to creating jobs over the past year? And as I said, it has added to the debt already and will only add more. Not to mention change the way SS is funded which could have longterm very negative effects on the program.

Why not, eg, just increase SS benefits? That would accomplish the same thing and help people who really need it more than those lucky enough to have jobs and the money is there. Any draw on the general fund to increase benefits would simply be a repayment of the debt to the SS fund.

Sorry, I just don't see why this will help at all.

[Hawkowl]

72. Oh, I agree with you

Not much help at all from a sheer economic sense and potentially great damage politically.

[stockholmer]

15. the increased consumption will actually lower GDP due to an increase in the trade deficit, plus

inflation will increase, not decrease, as the increased demand for the import of foreign energy will move upwards (especially if you do get a marginal increase in domestic manufacturing).

The US is less than 4% of the global total population, but even with its decimated manufacturing base, it consumes close to 25% of the worlds energy output.

The very definition of an unsustainable economic ecosystem.

[Unvanguard]

51. How exactly can increased consumption lower GDP by increasing the trade deficit?

I'm very curious about this.

[Hawkowl]

60. GDP

Gross Domestic Product (GDP) = private consumption + gross investment + government spending + (exports − imports)

So, focus on (exports -imports)

If you increase consumption of imports through a cash infusion from a payroll tax while keeping exports constant then GDP must fall.


Google and algebra are your friends.

[Unvanguard]

64. Actually, that equation only shows why the claim is absurd.

Any decrease in net exports will correspond to an increase in consumption. So, at worst, the effect on GDP of an increase in consumption would be no net change.

[Hawkowl]

71. Math

The equation does NOT say that at all. Post your mathematical proof please.

[Unvanguard]

73. Let me try a simple example.

Imagine a person spends $100. That boosts the consumption component of GDP by $100. Now, some of this money will ultimately go to domestic businesses, and some of it will ultimately go to foreign businesses. Let's take the most extreme case and say that $100 go to foreign businesses. Then net exports decreases by $100. $100 - $100 = $0. No change to GDP.

To get a change to GDP, you'd have to have a change to net exports that exceeded the boost to consumption. But if that happens, it won't have anything to do with the boost to consumption itself, at least not in any consistent, generalizable way.

[Hawkowl]

76. Math

The $100 comes from GDP. BALANCE YOUR EQUATION.

[Unvanguard]

80. What are you talking about?

I gave you a perfectly clear explanation. Your reply does not address any of it.

[MH1]

38. Or pay to get the car fixed. Or help keep up with the rent.

If people are buying actual crap at Walmart (and lord knows, Walmart sells enough crap, somebody must be buying it), those people get no sympathy from me.

But I know people who AREN'T buying crap at walmart and can actually use the few extra bucks to help make ends meet.

[Hawkowl]

59. True

I agree this will really help some people just get by. I grew up being one of those people where an extra $20 made or broke your entire future. However, I think we could balance this cut in payroll taxes by eliminating the cap, or at the very least not cutting the tax for say those earning over $50K.

Really this is just putting a band-aid on an amputation. The amputated limb being our industrial capacity having been offshored through "free trade". If we still made stuff here, the multiplier effects of a payroll tax holiday would be much, much, more efficacious.

[eridani]

24. Not if people are terrified of losing their jobs and save it instead n/t

[Unvanguard]

52. Very true.

More aid to states, more spending on infrastructure, more aid directed at lower-income people (who are more likely to spend it) would all be better uses of the money. But it's reasonable for the Obama Administration to be doubtful that any of that could meet with Republican approval. It remains to be seen whether this plan--or, more likely, a highly compromised version of it--will get anywhere there.

[Donnachaidh]

78. not if that piddling 1500 goes to paying utilities and food

Economic stimulation comes from folks being able to purchase things beyond the very basic necessities. This tax cut has two purposes -- to give tax cuts to the folks who are working, and to kick the legs out from under Social Security.

This proposal is pure-d politics. Nothing more.

[Unvanguard]

79. Very basic necessities require people to produce them.

That's not really a relevant distinction.

[drm604]

7. This is not trickle down. Trickle down econonmics is when the rich get tax cuts.

The idea being that if you let them keep more money, then they'll spend it creating demand and thus jobs. So it's "trickling down" on the rest of us. Of course, the reality is that, being rich, their basic needs have already been more than met so they don't spend enough of the extra money to make a difference. They instead invest it mostly in things that aren't economically productive, and thus they don't create jobs. Therefore "trickle down" doesn't work.

If you cut payroll taxes, you're putting more money in the pockets of working people. That is not "trickle down". Nothing is trickling down, you're already at the bottom. If working people have extra money to spend, they'll spend it to replace the kids' worn out shoes or to get the house repairs done or to replace that aging TV, or simply to eat. This creates demand and thus jobs. It's much different from "trickle down".

[hfojvt]

25. it IS trickle down though

because Obama is putting much more money in the pockets of richer working people than he is of poorer working people.

46% of the tax cuts goes to the richest 20%
26.8% of the tax cuts goes to the richest 10%

12.3% of the tax cuts goes to the poorest 40%

In dollar terms, that is $46 billion going to the richest 10%

and only $21.3 billion going to the poorest 40%.

Just like the Bush tax cuts, the bulk of it goes to the top while tiny amounts are thrown to the bottom.

Instead of trickle down, if the money was just used to hire people, 5.7 million people could be hired at $30,000 a year and those jobs would put just as much (actually more) extra consumption into the economy. After all, I am not gonna spend my tax cut. I am saving it to donate to somebody who challenges Obama in the primary.

[MH1]

36. Bullshit. 'Trickle down economics' has a specific meaning, and that ain't it.

[hfojvt]

54. well, according to wiki

"The term has been attributed to humorist Will Rogers, who said during the Great Depression that "money was all appropriated for the top in hopes that it would trickle down to the needy."

So I think I am pretty close here. All is impossible. Even the Bush tax cuts gave some money to the working poor. But Obama's plan here gives most of the money to the top 40% and predicts that it will trickle down to "the needy", in this case, those who need jobs. In this case, $124 billion goes to those with average income of $72,944 or higher (thos in the top 40%).

[Recursion]

42. Wow, you're disproving your point and pretending you're proving it

You just proved that a much greater percentage of the tax cut goes to the poor than would happen if it were a simple across the board rate decrease, and yet you're calling it "trickle down". That's ridiculous.

[hfojvt]

53. okay, so much for telling people the facts

BTW the first year of the Bush tax cuts gave 13.9% of its money to the bottom 40%, and only 42% to the top 20%.

But just because something is less regressive than other proposals does not mean it is not too regressive to be proposed or supported by a supposed Democrat.

[MH1]

35. Thank you. I find it hard to believe that someone who has been around here for awhile,

doesn't know what 'trickle down economics' means.

Seems disingenuous, but maybe that's just me. Thank you for giving a calm and intelligent answer in any case. :)

[drm604]

84. I just hate to see this kind of misinformation being spread, even if it's unintentional.

It just adds to confusion and makes it difficult for people to understand what's really going on.

[Skittles]

8. it isn't

it's just more of Obama sucking up to repukes - gotta keep those wars and the tax cuts for the obscenely rich

[PSPS]

9. It isn't supposed to create jobs. That's just the pretext.

The tortured logic goes like this: You get a "2% increase" in your wage due to the "tax holiday" and, thus, an orgy of spending ensues which propels the economy into happy land. Pretty stupid, but that's the proffered "reasoning."

Payroll taxes are, and always have been, "built into" the wage rate. Think of it as your "effective wage." If one's rate is lowered, as it is in this ridiculous "tax holiday," its only real effect will be to lower the "effective wage."

The true effect of this will be to underfund and, eventually, dismantle the social security system -- something the GOP has lusted to do ever since FDR. And our President Charlatan apparently has the same desire.

[stockholmer]

10. it won't, plus, due to the fact that 70%+ of US GDP is consumption, it will drive the trade deficit

higher, thus reducing overall GDP. Furthermore, it will force up governmental debt, if one is to believe the standard spew that the Social Security 'trust fund' is actually going to be 'paid-back' the missing $240 billion by the general fund. Not only this, but even if it does spur some production for export manufacturing, the USA will have to import copious amounts of foreign energy resources (ie oil, etc), and this will push core commodity and consumer goods price inflation further. But, ssshhh, don't tell Paul Krugman this.

[exboyfil]

11. Not that I necessarily agree with it

but reducing payroll taxes on the employer makes you more attractive to hire because the delta cost of adding another person has been reduced (what before you needed $100K of income to justify hiring you, you may only need $98K). As the numbers show it is pretty weak justification.

Of course the other is a demand side argument (more cash means more desire to spend - same thing as the stimulus checks earlier).

[ProSense]

13. Here:

Memo To Gretchen Carlson: Economists Say Cutting Payroll Tax Would Boost Employment, Economy

[markpkessinger]

18. Oh, that's easy . . .

. . . Once they've finished making sure Social Security is no longer solvent, just think of all the new jobs investment houses will create to handle this new pool of retirement investments!

[Rincewind]

19. A lot of people live

paycheck to paycheck. They have to spend every cent they earn just to live. If they have a little more money, they will spend it on things they need. If a lot of people send a little more money, businesses make more money, and, if demand increases enough, will have to hire more employees. Money spent locally can circulate up to 7 times in the local economy. Putting money in the pockets of people who will spend it increases the GDP, putting in the pockets of millionaires doesn't.

[Fumesucker]

29. But those aren't the people getting the majority of the payroll tax cut..

It's the upper end of the middle class who gets the bulk of the tax cut, for the most part they are not living from paycheck to paycheck.

[Recursion]

41. Actually no, payroll taxes (and their cuts) are regressive

The taxes hit, and the benefits go to, the poor end of the income distribution disproportionately

[Fumesucker]

44. The cap is currently about $106,000

Someone making just under that is going to get the maximum benefit from the payroll tax cut.

If you are making $8.00 an hour you aren't going to see nearly the benefit than someone making $100,000 per year.

[sabrina 1]

82. The tax holiday has already been in effect for 9 months. We

don't have to guess about it creating jobs. Does anyone have the numbers on what it has done so far and why it should be extended?

People are talking about it as if it hasn't happened yet. It has. So how about looking at the results?

[JohnnyRingo]

21. The more the vast working class spends, the more demand there is for products

Even if those products are manufactured in another country, any uptick in commerce is a jolt to the employment numbers. People in our class of citizenry spend nearly 100% of their pay. If we have 102% next year, we'll spend that too.

Do I misunderstand the laws of supply & demand?

[ibegurpard]

23. It's not

tying social security payments to the general fund is supposed to give ammunition to those who argue it's contributing to the deficit...thus giving them more reason to argue for cuts and dismantling it.

[ipaint]

27. 400,000 jobs in a year...one week of jobless claims.

for $120 billion. It won't even make a dent in the depression.

It will give conservatives in both parties the ammunition needed to starve social security to bathtub size, though.

"Macroeconomic Advisers projects that extending the tax cut for another year would increase U.S. employment by 400,000 jobs next year and add half a percentage point to the pace of economic growth, at a cost about $120 billion."("Payroll Tax Cut Won't Be Easy Sell", Wall Street Journal)

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=625879&mesg_id=626116

[hfojvt]

28. apparently with the two victories of Obama

Democrats have now embraced Reaganomics. Now that Obama is gonna spend so much time claiming that tax cuts will create jobs, his own words are gonna be used against those who try to raise taxes on the rich.

[TexasProgresive]

30. Here's the theory

Employers pay a portion of payroll taxes plus withholding a portion from the employee's paycheck. The idea is to give the employer more money with which to hire more employees. Whether this will work is anyone's guess.

Edited to add: I believe this to be true- but will stand down if someone has facts that counter my opinion.

[B Calm]

31. Cutting taxes and hoping people will spend, thus creating demand

for more foreign made shit will create jobs overseas. Stupid plan

[baldguy]

32. The hope is that if only the rich have enough money, the rest will benefit.

It's a classic tenet of the Supply Side myth.

[JoePhilly]

47. The payroll tax cut does not target the rich.

[inna]

33. i believe the primary motivation is to bankrupt the current system of social safety net

- which is a decades-old and well-documented RW objective.

[MH1]

34. WTF - You don't know what "Trickle Down Economics" means?? After all these years??

First, 'trickle down economics' is another name for supply side economics. Meaning that you help rich people get richer, and somehow the benefits 'trickle down' to the rest of us.

It has NOTHING to do with cutting taxes for lower income workers. NOTHING to do with a payroll tax cut. Rather, it has EVERYTHING to do with tax cuts on capital gains and estate taxes.

IT'S A BIG FUCKING DIFFERENCE and your post seems potentially disingenuous, because I know you've been posting around here for a long time and didn't just fall off the turnip truck.

But I may be misjudging. If so, please read the post I made just yesterday that answered your exact question (without the 'trickle down' part because I don't foresee that anyone would confuse giving money back to lower income earners with what trickle down really is.):

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=433x769189

[YellowRubberDuckie]

37. It think it is more stimulous than supposed to create jobs.

[MH1]

39. effective economic stimulus does create jobs.

the valid question is whether it will be effective stimulus, or whether it is enough.

[YellowRubberDuckie]

43. If these people who HAVE money would SPEND it....

It'd be a lot better. But no one is spending money right now. It's like my mom was looking for years for a used car as hers was slowly falling apart. There are no used cars at the car lots. No one is trading in their cars. Mechanics are doing a bang up business. People are fixing up their houses, they aren't selling them. And every time on TV the say something about the Dow going to drop, investors sell. It is a self fulfilling prophecy! The corporate media is doing it on purpose because they KNOW how people are going to react.

[MH1]

45. I know people who spend EVERY FUCKING CENT THEY GET.

and they're still just getting by.

Putting money in the pockets of those people will stimulate the economy.

Oh and I'm somebody and I still spend money at the same rate I did. Except I bought a new car recently.

[Recursion]

40. I get $30 (or whatever) more each paycheck

With that $30 I buy a pizza and a six pack of beer Friday night; if enough people are doing that the pizza store and liquor store will both hire a new person because of the increased demand.

[MH1]

46. Exactly.

it really amazes me the amount of reaching some people will do to undermine ANY proposal or action of this administration. Even when it is something liberals would usually ask for.

[JNinWB]

48. Extending the existing payroll tax cut accomplishes 3 things:

It keeps in place the existing cuts, not allowing them to expire which would cause an immediate "tax increase" of @2%.

Continues giving all workers the 2% tax reduction, thus giving them more spendable income. This additional cash in their pockets allows them to spend more per week, thus creating the demand that may encourage employers to hire.

Those who choose to save this 2%, or use it to pay down existing debt, improve their own balance sheets so they can spend more later.

This provision does put billions $$ to work in the economy; Obama had to propose measures that have a prayer of getting through the House Teatards.

[sabrina 1]

57. So why not just increase SS benefits which would accomplish

the same thing without risking the future of SS, since we know, that just like now, restoring that tax will probably be nearly impossible, and over time will definitely affect how SS is funded. Why mess with the system?

[Scruffy1]

61. I sure like how you think.

The whole political propaganda machine is all about limiting choices by narrowing down the options. It's what the MSM does best. In sales training its called boxmanship and goes like this : Would you like it in red or blue? Large or small? By providing us with only two options they powers that be are assured of getting what they want.

[GOPBasher]

63. Two reasons

First of all, it puts more money in the hands of lower income people who, unlike the rich, will immediately spend it. So, it creates demand, which is the biggest problem in our economy right now. Furthermore, it cuts the payroll tax of the employers, so they'll be more likely to hire to take advantage of this temporary decrease in their obligatory payroll tax. Now, don't get me wrong, I don't think this is NEARLY enough. The scale we're talking about will probably barely register in employment. However, the theory is sound and on a much larger scales it would probably make a significant dent in unemployment.

[sabrina 1]

66. Well, it's been in effect for a year already. How has it done what

you say it will do if it hasn't done so already? And again, why is this the only way to put $1,000 into the hands of the American people? Why not, as I suggested above, increase SS benefits which accomplsh the same thing and mean even more to the most needy people? Why mess with THIS program? Why is it always SS that is on the bargaining table? Don't we have other ways to stimulate the economy?

And, again, how has a year of this 'tax holiday' stimulated the economy? Everyone is talking about it as if it has not been done yet, but it has. And apparently has had virtually no effect on creating jobs.

[SusanaMontana41]

67. It does nothing for the unemployed and does everything

to weaken Social Security.

[Capitalocracy]

69. It may create some jobs, just not as many as better measures.

It differs from trickle-down in that with trickle-down, the theory is that the more money rich people have, the more they spend, therefore creating jobs. But they don't, they hoard it like muskrats. (I don't know if that even made sense.)

But if you give working class people more money, they spend it, which does help create jobs. However, if instead of spending money cutting taxes, you spent money on direct government job creation, that would create jobs AND put more money in people's pockets, thus creating more jobs with the same amount of money.

Now, if you really want to solve our economic problems, the best way to do it is to leave taxes the way they are (maybe increase the ones on the rich, hell even lower payroll taxes a little), increase the minimum wage to a living wage, the massive amounts of extra tax money coming in from the working class people who are paying the same percentage but have more money now gives you plenty of money for direct job creation, and then your revenue problem, your deficit problem, your unemployment problem, can all be taken care of.

[alarimer]

75. Pure politics.

That payroll tax cut put $20 in my pocket. It is a minuscule amount for most people and will do nothing but give the Dems more reason to cut SS by making it less solvent.

[Telly Savalas]

77. The aggregation of the extra $20 in people's pockets is insufficient

to impact the economy this year, but can undermine the solvency of SS over the next 75 years?

[B Calm]

81. The only jobs it creates is overseas.

[0rganism]

83. it can't and it won't

All we get from reduced payroll tax is reduced labor cost.

If you work a job at $10/hr, don't expect a raise just because your payroll tax got cut. You'll still work for $10/hr, and your employer will pocket the difference. Why should you suddenly get paid $12 for a job you'd do for $10 anyway?

And if I'm an employer with enough employees to meet demand for goods and services already, I'm not going to hire more labor just because it costs less per unit.

Supply-side economics is a scam, and it always has been a scam.

[jtown1123]

85. It didn't and it won't. Businesses aren't hiring b/c there is no demand. $1k extra can't stimulate

enough demand since the people getting these cuts have jobs already. My guess is the extra $20 a paycheck goes for groceries, utilities, debt payments, etc.

[treestar]

86. More money for smaller employers

Smaller companies pay their share of the payroll tax makes it harder for smaller companies to have more cash to hire someone. Generally, smaller companies create the most new jobs.