What Happens To The Economy If The Payroll Tax Cut Expires?
Yesterday, House Speaker John Boehner (R-OH) threw cold water on a temporary extension of the soon-to-expire payroll tax cut that had passed overwhelmingly in the Senate on Friday. “Well, it’s pretty clear that I and our members oppose the Senate bill,” Boehner said, despite the fact that on Friday he had called it a “good deal” and a “victory.”
House Republicans intend to vote down the Senate’s bill tonight, leaving the issue unresolved. But what happens if the payroll tax cut is allowed to expire? According to several economic analysts, it would severely affect growth and job creation next year:
– According to Macroeconomic Advisers, allowing the payroll tax cut to lapse “would reduce GDP growth by 0.5 percent and cost the economy 400,000 jobs.”
– Barclay’s estimated that letting the cut expire would knock 1.5 percent off of first quarter growth next year.
Meanwhile:
– Ameriprise Financial Services estimated that extending the cut “is likely to add between 750,000 to 1 million jobs.”
– Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, calculated that the payroll tax cut “would add 1 percentage point to economic growth and create 1 million jobs next year.”
– Regional Economic Models Inc. estimated that the cut would pump “$120 billion into U.S. households in 2012.”
“If the Europe mess weren’t there, there would be a good case for letting taxes go back up,” said Joel Prakken, the chairman of Macroeconomic Advisers. “But a combination of a big tax increase plus the threat from Europe, when the economy is still in the doldrums — why take that risk?” If the House does vote down the Senate’s bill, the Senate will have to come back into session in order to craft a final agreement.
By: Pat Garofalo, Think Progress, December 19, 2011
Good News!: If Top Tax Rates Return To Reagan Era, Bill O’Reilly Might Quit
Fox News’ Bill O’Reilly boasted the other day that he enjoys “more power than anybody other than the president.”
Apparently, though, this rather extraordinary degree of influence over national affairs isn’t quite enough for the conservative media personality. In fact, O’Reilly is so concerned about his potential tax burden under the “Buffett Rule,” he told his television audience last night he might just quit working altogether.
“I must tell you I want the feds to get more revenue. I don’t want to starve them as some people do. We need a robust military, a good transportation system and protections all over the place.
“But if you tax achievement, some of the achievers are going to pack it in. Again, let’s take me. My corporations employ scores of people. They depend on me to do what I do so they can make a nice salary. If Barack Obama begins taxing me more than 50 percent, which is very possible, I don’t know how much longer I’m going to do this. I like my job but there comes a point when taxation becomes oppressive. Is the country really entitled to half a person’s income?”
In case anyone’s interested in the relevant details, let’s clarify a few things.
First, we don’t know if President Obama is eyeing a top rate of 50%, and even if he did, the likelihood of congressional passage would be roughly zero.
Second, a top rate of 50% does not mean O’Reilly would lose “half” his income. I know this can seem a little complicated, but that’s just not how marginal tax rates work.
And third, a 50% top rate for millionaires and billionaires would be a departure from the recent past, but to describe it as “oppressive” is to forget much of the 20th century.
In Ronald Reagan’s first term, for example, the top rate was — you guessed it — 50%. Did Reagan’s “oppressive” tax rates prevent robust economic growth? Did “the achievers” decide to “pack it in”? No and no.
For nearly all of Dwight Eisenhower’s presidency, the top rate was 91%. That’s not a typo. Did this Republican president’s “oppressive” tax policy prevent the U.S. economy from growing in the 1950s? Apparently not.
That said, if O’Reilly is contemplating retirement to avoid helping America pay its bills, I’m not inclined to discourage him.
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, September 20, 2011
A Hack On The Stomp: Lindsey Graham Forgets What “Everything” Means
Lindsey Graham sure does sound confident about 2012.
South Carolina Republican Sen. Lindsey Graham says the 2012 presidential election is the GOP’s to lose.
“President Obama has done everything he knows how to do to beat himself,” Graham said on CNN’s “State of the Union.” “The reason people have little [confidence] in President Obama’s policies is they’re just not working. Everything is worse.”
Now, as I recall, Graham’s record of election predictions isn’t exactly sterling. A week before the 2008 election, Graham was in North Carolina touting John McCain’s chances. “[McCain] fits North Carolina like a glove…. I’ll beat Michael Phelps in swimming before Barack Obama wins North Carolina.”
A week later, Obama won North Carolina. Michael Phelps was unavailable for comment.
The senator’s track record notwithstanding, I still think Republicans are making a mistake with this “everything is worse” nonsense. Sure, Graham’s a hack, more concerned with cheap shots than telling the public the truth, but he should nevertheless realize he’s making the wrong argument.
“Everything is worse”? That might make more sense were it not for the fact that:
* American job creation is better now than when Bush left office.
* American economic growth is better now than when Bush left office.
* Al Qaeda is dramatically weaker now than when Bush left office.
* The American automotive industry is vastly stronger now than when Bush left office.
* The struggle for equality of the LGBT community is vastly better now than when Bush left office.
* The U.S. health care system is better and more accessible than when Bush left office.
* The federal budget deficit is better now than when Bush left office.
* The major Wall Street indexes and corporate profits are better now than when Bush left office.
* International respect for the United States is better now than when Bush left office.
Want to try that again, Lindsey?
Whether Graham realizes it or not, he and his cohorts are inadvertently making President Obama’s pitch to voters significantly easier. By that I mean, they’re creating a standard for the debate: either conditions have improved since Obama took office or they haven’t. What the right still doesn’t understand is that this is the best of all possible standards for Democrats.
If the message to voters is, “The status quo stinks,” that’s a tough message for Dems to argue against, because as much progress as there’s been since late 2008, conditions are still awful for much of the country. We were in a very deep hole, and we’re not done climbing out.
But if the pitch is, “Obama made it worse,” that’s a much easier message for Dems to argue against because it’s demonstrably ridiculous.
Republicans, who are usually better at messaging than this, are setting up the wrong question. Instead of asking, “Did Obama make things good?” they’re urging voters to ask, “Did Obama make things worse?” Democrats much prefer the latter for a reason.
If all Obama has to do is prove he didn’t make things worse, he stands a much better chance.
By: Steve Benen, Washington Monthly Political Animal, September 18, 2011
One Person, One Vote? Not Exactly
Two economists, Brian Knight and Nathan Schiff, set out a few years ago to determine how much Iowa, New Hampshire and other early-voting states affected presidential nominations.
Mr. Knight and Mr. Schiff analyzed daily polls in other states before and after an early state had held a contest. The polls tended to change immediately after the contest, and the changes tended to last, which suggested that the early states were even more important than many people realized. The economists estimated that an Iowa or New Hampshire voter had the same impact as five Super Tuesday voters put together.
This system, the two men drily noted in a Journal of Political Economy paper, “represents a deviation from the democratic ideal of ‘one person, one vote.’ ”
A presidential campaign is once again upon us, and Iowa and New Hampshire are again at the center of it all. On Thursday, Mitt Romney will announce his candidacy in Stratham, N.H. Last week, Tim Pawlenty opened his campaign in Des Moines. The two states have dominated the nominating process for so long that it’s easy to think of their role as natural.
But it is not natural. It’s undemocratic, in fact. It is unfair to voters in the other 48 states. And it distorts economic policy in several damaging ways.
Most obviously, the federal government has lavished subsidies on ethanol, even though those subsidies drive up food prices and do little to solve the climate problem, partly because candidates pander to the Iowa corn industry. (Mr. Pawlenty, who now says the subsidies must end, is an admirable exception.) Beyond ethanol, a recent peer-reviewed study found that early-voting states received more federal dollars after a competitive election — so long as they supported the winning candidate.
Pork is hardly the only problem with the voting calendar. In the long run-up to the first votes, Iowa and New Hampshire also distort the national conversation because they are so unrepresentative. They are not better or worse than other states, to be clear. But they are different.
Their populations are growing more slowly than the rest of the country’s. Residents of Iowa and New Hampshire are more likely to have health insurance. They are older than average. They are more likely to work in manufacturing.
Above all, Iowa and New Hampshire lack a single big city, at a time when large metropolitan areas are crucial to lifting economic growth. Big metro areas are where big ideas most often take shape and great new companies are most often born. The country’s 25 largest areas are responsible for 52 percent of the country’s economic output, according to the Brookings Institution, and are home to 42 percent of the population.
Yet metro areas are also struggling with major problems. The quality of schools is spotty. Commutes last longer than ever. Roads, bridges, tunnels and transit systems are aging.
You don’t hear much about these issues in the first year of a presidential campaign, though. No wonder. Iowa, New Hampshire and the next two states to vote, Nevada and South Carolina, do not have a single city among the country’s 25 largest. Las Vegas, the 30th-largest metro area, and the Boston suburbs that stretch into New Hampshire are the closest these states come.
So the presidential calendar becomes another cause of what Edward Glaeser, a conservative-leaning Harvard economist, calls our “anti-urban policy bias.” Suburbs and rural areas receive vastly more per-person federal largess than cities. One big reason, of course, is the structure of the Senate: the 12 million residents of Iowa, New Hampshire, Nevada and South Carolina have eight United States senators among them, while the 81 million residents of California, New York and Texas have only six.
Bruce Katz, a Brookings vice president and veteran of Democratic administrations, points out that the world’s other economic powers take their cities more seriously. China, in particular, has made urban planning a central part of its economic strategy.
“The United States stands apart as an anti-urban nation in an urbanizing world,” Mr. Katz told me. “Our political tilt toward small states and small towns, in presidential campaigns and the governing that follows, is not only a quaint relic of an earlier era but a dangerous distraction at a time when national prosperity depends on urban prosperity.”
The typical defense from Iowa and New Hampshire is that they care more about politics than the rest of us and therefore do a better job vetting candidates. But the intense 2008 race between Barack Obama and Hillary Clinton showed that if Iowa and New Hampshire care more, it’s only because of their privileged status. In 2008, turnout soared in states that finally had a primary that mattered, be it Indiana or Texas, North Carolina or Rhode Island.
A more democratic system would allow more voters to see the candidates up close for months at a time. The early states could rotate each year, so that all kinds — big states and small, younger and older, rural and urban — had a turn. In 2016, the first wave could include states that have voted near the end recently, like Indiana, North Carolina, Oregon and South Dakota.
A rotation along these lines would enliven the political debate. Investments in science and education, which are the lifeblood of future economic growth, might play a bigger role in the campaign. You could even imagine — optimistically, I know — that the deficit might prove easier to address if Medicare and Social Security recipients did not make up such a disproportionate share of early voters.
The issues particular to small-town America would still receive extra attention because so many of the 50 states are rural and sparsely populated. It’s just that Iowa and New Hampshire would no longer receive the extreme special treatment they now do.
And that special treatment is a nice thing, indeed. It focuses the entire country, and its next leader, on the concerns of only 1 percent of the population, as if democracy were supposed to work that way.
At a recent candidates’ forum in Des Moines, The Wall Street Journal reported, the moderator did something that seemed perfectly normal: She chided Mr. Romney for not having spent enough time in Iowa lately. “Where have you been?” she asked.
How do you think the rest of us feel?
By: David Leonhardt, Economic Scene, The New York Times, May 31, 2011
Spending Cuts, Jobs, Growth: The GOP Austerity Delusion
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.
So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.
How’s that story working out so far?
Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.
But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.
Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.
That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.
And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.
But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.
Which brings me back to what passes for budget debate in Washington these days.
A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.
In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 24, 2011
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