October 11, 2009
Britain's Central Planning Death Panels
October 11, 2009
Free Market M.D.
October 11, 2009
Economies of Scale in Compliance
October 11, 2009
Balan's Challenge
October 10, 2009
The Pleasure of Telling Others What to Do
October 10, 2009
Gonick the Great - and How He Could Have Been Greater
October 9, 2009
More Scott Sumner
October 9, 2009
Not From The Onion
October 9, 2009
Thoughts on a Second Stimulus
"How would the fact that the proposed tax cut is temporary reduce its demand-side and supply-side stimulus?"
The reason it would reduce the demand-side stimulus is that people will know that this just means a tax increase later and will save accordingly. The offsetting effect, however, is that a lot of people who would be getting money from this are presumably under borrowing constraints, which would negate the aforementioned "Ricardian" effect.
As for "supply side-stimulus", I guess I just find it weird to see those two terms together. I have always thought of "stimulus" to mean a short term boost to the economy, but the problem right now isn't that we don't have enough goods and services to go around--it's that we don't have enough demand to buy the goods and services available. I think what you're getting at is the long run supply-side effects, which are nil in this proposal since incentives aren't altered if this is only temporary.
Because the tax cut would be temporary, most people won’t alter their behavior. Hence, although they might spend the temporary windfall, longer term, demand won’t change. Businesses know this as well. So while they might clear out some inventory, they won’t change production plans and hence won’t hire any new workers.
A temporary payroll tax cut isn’t going to do any more good than the $300 and $600 checks did last year.
As a side note, it’s refreshing to see a liberal Democrat admit that the Social Security Trust Fund is “nothing more than an accounting device.” Perhaps now at least some of the politicians will be able to treat it as something less than sacrosanct.
Is there any question that a temporary tax cut will do nothing to spur the economy? Reich should know better.
Also, the payroll tax is not a tax, it's a payment into a pension system (or so the ruse that is Socialist Insecurity goes). It would seem to me that a cut in the payroll tax WOULD have Ricardian implications. People WOULD save the tax cut because their Social Security pension will be smaller because of the cut.
What I find interesting is that a leftist like Reich is willing to gut the funding mechanism of the social welfare program that has done the most to keep the Democrats in power. If the payroll tax can be cut without political consequence to Republicans, then Social Security can be privatized without political consequence.