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February 10, 2009

A Genuine Economist Also Thinks Payroll Tax Cuts Are a Great Idea

As I've pitched before. I don't know if Mankiw's idea is this dramatic, but Flip Pidot ran the numbers and for the $1.2 trillion the stimulus was (it's growing), we could cancel all employer-paid payroll taxes for 2 1/2 years, or cancel both employer and employee paid taxes for 1 and 1/4 years.

Using standard economic modeling, such cuts should result in a gain of 2.8 million jobs, Flip found.

He pushes his own spin on the idea here.

Mankiw's idea is a bit different. He wants to link this cut to a hike in gas taxes, so that the two end up being revenue-neutral-- over time. At first, it would just be the tax cut, to give the economy a jolt; the hike in gas taxes would be phased in during the recovery.

He sort of has to propose such a thing, because I think he's talking permanent cuts to these taxes, and he has to make up the revenue (for SS and Medicaid and etc.) from some source.

Eh, it's an idea. For those upset by the idea of the gas-tax hike -- well, again, it's revenue neutral as ultimately implemented, so in theory the drop in payroll taxes should equal, more or less, the additional taxes you're paying at the pump.

And while I generally buy the "don't raise taxes, ever" notion, I don't think Mankiw's gas-tax hike is a bad idea as part of this package. If the same amount of taxes are to be extracted from us either way, it seems to make more sense, to me at least, to lower the costs of business and employing workers while raising a tax on gas that will encourage more fuel-efficient vehicles. And no, I don't give a crap about carbon; I care about putting money in the hands of "countries that don't like us very much," as McCain said.

(It occurs to me now that if that actually happens, we won't have as much revenue coming in via the gas tax, and somewhere taxes will have to be raised. Well, maybe. Sometimes a dynamic change in the tax structure encourages more growth and thus generates more revenue even at lower rates of taxation.)

Not sure where I saw this, but I think even super-lefty Juicebox Mafia bogger Matthew Inglesias called it "indefensible" that the stimulus did not have some payroll tax cuts.

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posted by Ace at 04:04 PM

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