Mike the Mad Biologist

Obama Administration, In Desperation, Toys with Supply-Side Tax Cuts

Posted by Mike on June 9, 2011
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The economic malpractice by the Obama administration is shameful. A while ago, I argued that one of the few moves that Obama could make politically to jump start the economy would be a temporary elimination of the payroll tax for workers. This could increase consumer demand (although not nearly as much as a jobs program would. Today, Bloomberg reports that the Obama administration is considering a payroll cut, but on the employer side:

President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages as they debate ways to spur hiring amid signs that the recovery is slowing, according to people familiar with the matter….

Targeting the employer side of the payroll tax could both attract Republican support and spur job growth, said Christina Romer, who was Obama’s first chairman of the White House’s Council of Economic Advisers.

“A cut in the employer side of the payroll tax could absolutely help accelerate job creation,” Romer, an economist at the University of California at Berkeley, said in an interview. “In addition to the usual beneficial effect on demand, this tax cut would make hiring less expensive.”

I don’t know what Romer is thinking (although given her track record of lowballing unemployment, it’s par for the course). Businesses won’t hire until consumer demand picks up. The savings businesses would receive won’t be plowed back in wages (which would increase demand). Instead, it would just be added to the record high pile of cash corporations are already hoarding.

If they’re going to push for tax cuts, have a cut that helps middle- and low-income workers, since they will spend the money.

Rockefeller Republicanism isn’t going to cut it: people have to like this crap. It’s like he’s trying to lose the 2012 election.

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Comments

  1. #1 informania
    June 9, 2011

    “If they’re going to push for tax cuts, have a cut that helps middle- and low-income workers, since they will spend the money.”

    But they don’t know any of those workers.. How would tax cuts like that shift cash into the pockets of their friends, associates and familymembers??

  2. #2 T. Hunt
    June 9, 2011

    I work for myself, by myself. IF I were looking to hire help, I certainly wouldn’t do that until I saw that I could not possibly keep up with demand on my own. If I got a tax break, I wouldn’t hire anyone, I’d just pocket the money.

    I wouldn’t expect GM or McDonalds to hire anyone until there is more demand for cars or burgers. I don’t understand how anything other than demand will drive hiring and the economy overall. Just as equipment has to pay for itself, so do workers. GM isn’t going to buy another million dollar press unless there is a demand for cars that it can’t meet with its existing tooling. Why would they hire a worker under those same circumstances?

    I’m not an economist but I would think that in the debate over how to stimulate the economy, giving tax breaks to companies, large or small, would be way down on the list. The only thing that will spur hiring is demand so we need a way to stimulate demand for goods and services.

    I’m not sure it’s as simple as that but it might be…

    T. Hunt

  3. #3 Mike from Ottawa
    June 9, 2011

    These days, the best that can be said of Obama is that it could be worse.

  4. #4 david
    June 9, 2011

    Sticky wages hypothesis. If, as is common in Keynesian macro, one blames sticky wages, then cutting the employer-side tax reduces stickiness but cutting the employee-side tax does not.

  5. #5 VM
    June 10, 2011

    “as is common in Keynesian macro”

    stuck in 1950, are we?

  6. #6 Mike from Ottawa
    June 10, 2011

    No, you’re stuck with zombie economic lies.

    The ‘freshwater’ or ‘Chicago’ school has been wrong on everything in the current recession and the Keynsians right. Instead of merely going with fashion in economics as you are, how about outlining the thinking process by which you conclude that a business owner who currently has capacity the capacity to produce more than she can sell would hire new employees to increase the amount of unsaleable product she produces just because it becomes slightly cheaper to hire those employees.

    And don’t be invoking any magic like ‘confidence’ unless you can explain why that business owner who knows it’s insane to increase her capacity will think that her customers will come to the opposite conclusion and start ordering more of her stuff to increase their capacity.

    Supply side doesn’t fly now because it’s demand that has slumped as individuals, corporations and state governments in the USA have been cutting back in order to deal with their debts/deficits.