Home > Main > A larger Payroll Tax Holiday in the works?

A larger Payroll Tax Holiday in the works?

June 8, 2011

Good news – at least the Obama team recongnizes there is a still a huge economic shortfall, and they are aiming in the right direction to fix the problem.

So far, just an employer side payroll tax holiday:

“President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages amid economic reports suggesting the recovery is slowing, according to people familiar with the matter.

The idea, in preliminary stages of discussion, is among several being debated in the administration with the aim of boosting hiring, the people said on condition of anonymity to discuss internal deliberations. “

They need to recognize the reason people are not hiring is because lack of business. When people have lots of business, they hire people!  Profits do not matter as much as business quantity.  Why not try to swamp businesses with demand, rather than induce them to hire?  The hiring decision is really, really easy when you have to start turning away customers because you don’t have enough people.

We need to make this a meme:  Businesses hire more people when they are swamped with demand, not when they have high profits!

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  1. wh10
    June 8, 2011 at 9:43 pm

    Maybe they realize this, but it’s probably more realistic to pass tax cuts business side vs consumer side because of Republican opposition.

  2. TC
    June 9, 2011 at 7:57 am

    Could be. If they have learned anything, It could be their opening offer in a package of tax cuts. They seem to enjoy negotiating with themselves prior to proposing a package. But Obama seem like a person who can learn, and I bet the influence of the Austerity wing within the White house is fading at the same rate as Obama’s popularity.

  3. wh10
    June 9, 2011 at 1:06 pm

    Hm. What gives you the read that Austerity is becoming less popular? GS feels there is little hope – http://pragcap.com/what-are-the-policy-options . Also with Goolsbee resigning.

    • TC
      June 9, 2011 at 1:19 pm

      People that follow politics are care about the budget, but most people have never even heard of the debate.

      Go out, tell them you’re cutting taxes to give them more money in their paycheck every week. Don’t even bother mentioning inflation in the popular message. Just talk about the tax cuts.

      The beltway might go wild, but they did this to Reagan too. When the recovery comes, Obama is a lock for re-election.

  4. Dfurlano
    June 9, 2011 at 3:22 pm

    So I guess when this fails it will be more proof that there is a demand issue and not a tax issue.

    But then again I am sure republicans will make it look like austerity is the only way to go.

    Either way we’re all screwed.

    • beowulf
      June 9, 2011 at 5:16 pm

      Why choose? Cut both employer and employee sides of payroll taxes and then keep cutting.

      A conversation with [Herman] Cain doesn’t go very far before he gives you his prescription for the current economic mess. “Number one: stimulate the economy with direct stimuli,” he says. “Lower corporate tax rates, lower personal income tax rates — they work. Take the capital gains tax rate to zero. Suspend taxes on foreign repatriated profits. Provide a real payroll tax holiday — 6.2 percent for the employee, 6.2 percent for the employer. That’s the Social Security piece. Do it for a year. Then put a bow around it and make those rates permanent. You do that and you remove the veil of uncertainty — businessmen will go crazy. They will start investing again.”
      http://forums.somd.com/politics/227630-more-herman-cain.html

      Actually cutting taxes on everything… employers, employees, demand and investment… is definitely a shotgun approach but it’d be a big improvement over the status quo, so let’s tee it up. A pilot buddy was telling me when a jet liner flies into windshear, there’s is only one play — firewall the engines and hope you have enough lift and speed to punch through before you run out of altitude. Only a maniac (“This is Captain Geithner from the flight deck”) would spend one second worrying about whether he could save the engines, The airline would much rather total the shredded engines back at the hangar than to to take a loss on the engines, the plane and the payouts to a bunch of sad looking widows and orphans.

      I think Cain understands the principle perfectly, but clearly the President does not. I don’t get it, when the most conservative GOP presidential candidate running has proposed something that could actually get Obama re-elected, why on Earth hasn’t Cain been invited to a White House presser where the President endorses his plan? Politically and visually, it puts the Republicans in a box. The GOP will have to choose between jumping on board (spinning, I’m sure, that that they should get all the credit) or… they can start attacking a huge bipartisan tax cut endorsed in the Rose Garden by a black Democratic president and a black Republican candidate, that would not be a good play for the GOP. Seriously, this White House misses more easy layups than the Washington Generals.

      • Dfurlano
        June 9, 2011 at 6:31 pm

        Here is my opinion. And I am only a bystander in all this so nothing personal.

        I have worked for several big companies but I would like to pick out my former days at GE.

        GE’s mission everyday was to maximize profits. It gets profits via product and service creation.

        If you give GE a tax break they will hire no one and most likely not invest a penny. Ge does not hire based on how much money they have or make. Additionally why would GE have one extra person that they didn’t need? GE invents on a preplanned annual basis if you give them more money they don’t go back to the businesses and redistribute the extra money. It would be held at the corporate level and most likely end up as a financial investment.

        Sure smaller companies may do it differently. But 1) how much can you save with a FICA holiday if you are a small business. 2) I if you need to hire some and and need a tax break to do so what does that say about the strength of your business and management?

        A tax break for individuals makes sense but again it will not create the demand needed to really get the economy going. If people have an extra 10% in their pay at what level income does that not do anything? If someone grosses 150K with that really change their spending? Under 100K it may be a big deal but it all gets spent either at Walmart or catching up on payments in arrears.

        So they go ahead and announce this tax break and the market responds positively (gets richer) and stocks go up, Jeff Immelt is happy. Then what? The way I see it unemployment is a few tenths of a percent better and everyone cheers! WIN!

        No, the debt/deficit will still be high and the Austrian’s will say we need to cut spending because we did the stimulus and that didn’t do squat.

        We are in the same exact place having the same exact conversation.

        It’s ineffectiveness at its best.

        Dan
        .

        • TC
          June 9, 2011 at 9:12 pm

          I agree that this is the most likely outcome. Employeer side tax breaks will have no effect for small or medium size businesses simply because the few percent it saves isn’t a factor at all in the hiriing process.

          But if this is used as a bargning chip to get some employee side tax cuts, it might work. I think that for people making less than $50k, they will spend the extra money right away. That is a huge amount of extra demand. And I know, we make money, but most people in the U.S. do not make that much money.

  5. Detroit Dan
    June 9, 2011 at 8:14 pm

    The full Beowolf / Herman Cain would give the Austrians a run for their money though, wouldn’t it!

    • Dfurlano
      June 9, 2011 at 9:00 pm

      But then there is reality.

      Damn reality.

    • beowulf
      June 9, 2011 at 10:51 pm

      A run for their money or a run ON their money? They’d take out every dollar in their account and convert it into gold coins and canned food. :o)

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