Bryan Caplan  

Obama's Botched Payroll Tax Cut - Now With Graphs!

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President Obama vs. the WOGs... Goodman on Wealth...
Bob Murphy has taken the time and trouble to explain and graph my critique of Obama's payroll tax cut.  Nice work, Bob!


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COMMENTS (3 to date)
Lord writes:

This shows not the deficiencies of the tax cut, but the deficiencies of the model used though. In depressions, one does well to do this analysis and then do the exact opposite of what it suggests. This is because what is desired is not goods, but money, so lower prices mean less spending as more can be saved. Conventional thinking simply doesn't work in depressions.

Richard A. writes:

M x V = P x Q

Cutting payroll taxes on the employer side will lower the cost of labor and thus lower P causing Q to be higher. It will also tend to increase the deficit causing an incremental increase in V.

Cutting payroll taxes on the employee side will do nothing to lower P but will also tend to increase the deficit causing an incremental increase in V.

IOW, you get more bang for the buck by cutting payroll taxes on the employer side.

Richard S writes:

I think Bryan's critique rests on the assumption that it is the pre-tax wage that is sticky rather than the post-tax wage. If the post-tax wage is the sticky one, then employment will rise even if the tax break goes to the employees. Do we know that it is in fact the pre-tax wage that creates the floor?

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