I am not sure what to say about this Dave Weigel piece. His thrust seems to be that the Democrats shouldn’t push for a tax increase because its basically fighting on Republican turf.
Well, okay . . .
But, its still a good idea. For one thing even if it did nothing to “stimulate” the economy it would bring relief to working people in one the hardest economic times in recent memory. That’s a good unto itself.
However, even more than that its hard to see how you lose with a payroll tax cut. If people spend the cut it boosts Aggregate Demand and helps relieve unemployment. If people save the payroll tax cut, they will increase the rate at which repair household balance sheets and get out of the recession.
Moreover, unlike regular citizens the government can borrow at a profit!
If the government give you a tax cut today, pays for it with 5 year bonds, and then taxes you to pay back the bonds in five year you will be better off. Why?
Because the interest on the bonds will not cover the inflation between now and the time you have your taxes raised.
Indeed, the government should use this opportunity to completely cut the payroll tax to zero and allow households to repair themselves again at a profit!
I would also suggest cutting the tax rate on business because I believe that will not only spur demand but lower payroll constraints for lots of firms. However, even if only the rate on workers was cut that would be a great positive for the economy.