Building on the President’s public comments floating an extension of the current payroll tax cuts and extended unemployment benefits, the White House, Congressional Democrats and liberal economists have started talking about adding stimulative measures into any debt limit or budget deal. The poor state of the economy, particularly with respect to unemployment, which stands at 9.1% and which saw another report of elevated first-time jobless claims today, is shifting the discussion over the deficit.
But the shift is fairly subtle. Jackie Calmes’ article doesn’t offer much by way of specifics, outside of re-emphasizing what President Obama said in a press conference earlier in the week, that he would want to extend the payroll tax cut and unemployment benefits.
Democrats and more liberal economists are suggesting that any long-term deficit reduction be paired with short-term spending increases or tax cuts to spur the economy, should it continue to weaken — perhaps by extending for 2012 the payroll tax cuts, business write-offs for equipment and other investments and extended federal unemployment benefits that President Obama and Republican Congressional leaders agreed to in December for this year.
Mr. Obama stoked such speculation on Tuesday at a press conference alongside Chancellor Angela Merkel of Germany, when he was asked what he might do to avert a double-dip recession.
“One of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure we get this recovery up and running in a robust way,” he said.
Republicans would probably support extending the tax cuts, but not the unemployment aid. “I don’t know if throwing more money at the problem is going to solve anything,” Reince Priebus, the Republican Party chairman, said Wednesday at a breakfast hosted by Bloomberg News.
So in asking for one tax-based stimulus that hasn’t shown itself to be very stimulative historically, and one spending-based stimulus that has a high economic multiplier, the Republicans will choose the tax-based stimulus. Shocker!
Meanwhile, the White House has built on the comments from Obama with a counter-offer: an employer-side payroll tax holiday. Currently, the employee side of the payroll tax has been shaved for 2011 from 6.2% to 4.2%, with the theory that employees will spend the money. But this latest proposal would cut the employer contribution to the payroll tax, which funds Social Security and disability insurance. All money would be repaid to the Social Security trust fund through general revenues.
In an analysis released shortly after the December 2010 tax-cut deal, Deutsche Bank Securities economists Joseph LaVorgna, Carl Riccadonna and Brett Ryan estimated that the employee payroll tax cut would boost gross domestic product this year by an additional 0.7 percentage points.
Targeting the employer side of the payroll tax could both attract Republican support and spur job growth, said Christina Romer, who was Obama’s first chairman of the White House’s Council of Economic Advisers.
“A cut in the employer side of the payroll tax could absolutely help accelerate job creation,” Romer, an economist at the University of California at Berkeley, said in an interview. “In addition to the usual beneficial effect on demand, this tax cut would make hiring less expensive.”
We’ve done hiring tax credits, we’ve done “16 small business tax cuts,” we’ve done a number of measures over the past two years aimed at getting businesses to hire, most of which made the cost of hiring cheaper. These have not worked appreciably. The payroll tax cut in question may (or may not) be better than nothing, and their macroeconomic impact would depend on size. The two-point reduction in the employee side of the payroll tax from December 2010 cost roughly $112 billion. It was effectively a two percent raise on the first $100,000 of income. The employer-side would cost the government a similar amount if it were, say, two points, but it’s unclear where that money would go. Would businesses pocket it or use it as an incentive to hire more? Economists think the latter, but given all the other inducements tried I’m skeptical. It’s just as possible that the money will go to keeping people hired, not hiring anyone new. That’s not a bad thing but it won’t necessarily improve the employment situation.
There’s also the danger of continually cannibalizing the payroll tax cut and threatening the Social Security Trust Fund, even if there are assurances that the trust fund would be repaid out of general revenue. Once these reductions start they’re very hard to stop.
What is clear is that this is a matter of political self-preservation for the White House, and they’re thinking of ideas that can a) possibly improve the employment picture and b) pass Congress. But they may have to also think of what CAN’T pass right now as well. AS Mark Weisbrot told the New York Times, “I think Obama himself is going to have to move or he’s going to risk losing the next election. He’s going to have to say clearly that the federal government has to step in when the economy is so weak.”
And one thing is crystal clear: burying the economy with near-term deficit reduction would be fatal for the recovery and lead us back toward recession. Apparently the Administration wants to delay the effect of any deficit reduction deal, which is the right move. But with such big numbers and after talking about this for 18 months, it’s unclear if they’ll be able to get away with that.
UPDATE: Not mentioned at all by the Administration or even liberals who don’t have the burden of thinking about what’s “possible” is the idea that could actually work, i.e. paying people to do stuff.



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Also the administration should consider abolishing the employer PPACA mandate which dampens hiring and also has led to uncertainty for employers especially since over a thousand waivers have already been granted. Isn’t the USA the only country in the world where employer-funded health care is mandated? That’s not fair for U.S. companies who are unable to compete with foreign competitors on equal ground.
Is there any chance that the Prez understands just exactly how deep this hole is (let alone, how badly he squandered his opportunities early on)? That, by the by, was not a rhetorical question.
Let’s see. We have a deficit and have to cut everything. There is not enough revenue from taxes.
Obama solution: cut taxes on businesses and maybe it will “trickle down” on the peons.
Less revenue will mean more cuts. Lower business taxes mean more profits for the rich who own nearly all the business assets in America.
Since the rich don’t send their kids to public schools, we can get rid of them. Ditto: public transit, health clinics, food stamps, public swimming pools and rec centers, roads to lower class neighborhoods and free admission to public parks.
Things we will have money for? Tax rebates for corporations, subsidies for big farms, police to protect the rich from the poor, and an army to protect the rich from foreign poor.
another direct hit on social security
You are implicitly suggesting that Obama has some abilities beyond community organizing and speaking that he obviously lacks and has never demonstrated. Only in America could such a neophyte make it big in politics.
This White House is completely clueless about the Economy!
The major problem facing the USA is the crazy idea of free trade.
The Chinese, India, Europe, etc. don’t believe in free trade and never will. Thus the reason all these nations have high tariffs.
The USA has the lowest tariffs in the modern world.
Why is this? to kill the USA middle class?
So call USA corporations are killing the USA middle class, by chasing cheap labor all around the globe.
the Forefathers fears of corporations are coming true! What is a USA Corporation?
Is a USA corporation one that hires abroad before it hires at home?
Is a USA corporation mission to destroy USA unions?
What is a USA corporation?
We all know if a USA plant get blown up abroad, So Call USA corporation will beg for USA military help.
In the rest of the world there is single payer, which is mandated insurance. “Employer paid” or “employee paid” means nothing, except in the world of cutting wages by shifting cost to employers.
Either we have standards, heath car, environmental laws, and labor laws, and choose to support these standards, or we have a race to the bottom with countries that have no such standards, and thus no costs.
We have a choice: erect tariff barriers to protect our standards, hard won, and always applied in retrospect after some appealing disaster, or we can cannibalize our standards in a race to match Chinese and other Asian wages.
A result the YOU PERSONALLY will hate, as it will and is leading to a collapse in consumption (our economy is 66% or so consumption based), and YOUR shopping centers and other rents collected will trend downward sharply.
You investments will become worthless (revenues will fall, variable costs will fall, fixed costs will consume the profits, and viola, zero profit, thus zero value). That is the assets will become as worthless as your arguments.
We know what a US Bank is: One dependent on Government Largess to support predatory lending a fraud around the world, while employing few in the US.
“Welcome to Bank of America’s support line in Utter Pradesh, India”
But the reason employer-funded health care is mandated is other businesses refuse to accept a national health care plan so that workers can have care. The unfair behavior, if there is any, is the result of other businesses, and the cost of any corrections should be their responsibility alone – not dumped onto of those who can’t pay as many K Street lobbyists.
If we’re talking about equal ground, then we should adopt the health care systems of those countries against which we’re competing. Usually this means some variation of single-payer health care for all – that foreign businesses don’t have to pay for additional health care because it’s provided by the government is exactly why they have an advantage (and many businesses in the U.S. understand this, they were simply outspent in the lobbying and campaign contribution contest).
Unless by “compete with foreign competitors” you mean a spiraling race to the bottom to see which country can force the worst working conditions on its people without them rising up to overthrow their government.
Are you kidding? U.S. corporations are competing just fine, despite having to offer health insurance. They are reaping record profits. The more that U.S. workers lose, the more the investors at the top gain, and there is no increase in jobs.
Maybe you should suggest also that the minimum wage in the U.S. be lowered to $1 per hour, so businesses here can level the playing field to better compete with businesses in places like Bangladesh.
?? You’ve heard of Arnold Schwarzenegger?
‘If we’re talking about equal ground, then we should adopt the health care systems of those countries against which we’re competing. ‘
Their tax rates would help as well. The U.S. is losing economic health by adopting corporate welfare at the expense of wages for workers.
Actually, what I am (not suggesting, but) wondering is precisely what I asked. My query would, of course, presuppose that he has the ability / fortitude to (at long last) appoint people who are not proven hacks / failures. Can he actually look back and say, “Hmmmm….I might have screwed up by picking the wrong dudes. Time to try something else.” Open question.
My personal opinion is that were he ever to do this, it would only be after the election – assuming he wins, which is a toss-up at this point. He won’t risk alienating his corporate benefactors before an election. If he wants a cushy post-presidency yob, he’ll keep doing the same thing. If, on the other hand, he wishes to be seen historically as a transformative president, he’ll throw Wall Street overboard after the election. The smart money would bet on the former…
Two points:
Even “stimulative” fiscal measures are pointless. The U.S. economy over the past 30 years has been systematically gutted and the jobs shipped overseas – actions for which the executives who directed them were lavishly compensated. The U.S. no longer produces anything that anyone wants to buy, other than a few shiny tech toys and military weapons. “Stimulative” actions alone will result in at best some bridge repairs and some jobs at McDonalds to serve the bridge repairers coffee before the bridges are fixed and the rest of the economy finally stops.
And as far as the suggestion that Obama might have to do something, anything, to keep the electorate happy for 2012, Obama doesn’t have to do a damn thing, other than appear to be marginally better than the other plutocrat sock puppet.
But the biggest issue is that not only has the U.S. economy gone into cardiac arrest, needing a jolt of stimulus, its heart has been removed and sold to organ recipients overseas.
Gar Alperovitz ,, economist, from an interview (posted here a few days ago)
Doesn’t matter how big the hole in the Titanic is – to those already paddling away in the lifeboats.
You mean: just like Sarah Palin???
That’s the ticket, let’s bankrupt social security so some global corporation don’t have to pay any US income taxes (hint GE). Or like Google that pays a whopping 3% on billions in revenues.
Well stated (sadly). Couldn’t agree more.
Libertarians *may* wake up one day and realize that they, too, have been just as robbed as us dreaded & dreadful leftie-liberals, when all of their investments & jobs go into the toilet, too. It’s stinkin’ thinkin’ if you believe that, by aligning yourself with crooks & theives, they’ll take care of you.
The MOTU laugh their freakin’ butts off at libertarian peons who are “supportive” of the rapacious overlords & their profligate criminality… they laugh all the way to their off-shore accounts.
Oh so unfaaaaaaaiiiiiirrrrr to poor poor poor benighted teh Google!!! /s
The key lies in a decentralized, worker controlled green economy. And the end of Wall Street. The end of a sclerotic corporate capitalism.
If Oilbummer continues the same Raygunite policies we are guaranteed unemployment in the 15-20% range. Guaranteed.
The increased profits largely come from foreign operations, outsourcing, mechanizing and pushing domestic employees harder, and also from not hiring partly because of government requirements like PPACA.
So far, so good. But it’s the sound of one hand clapping until it can be determined what can be pried out of the House.
I suspect the House will demand tit-for-tat “compromises,” which won’t cut the mustard and shouldn’t be taken on in any form by the Administration.
As such today’s piece does serve talking points, though, even if it doesn’t go anywhere.
And this one’s a bit dubious:
“. . .this latest proposal would cut the employer contribution to the payroll tax, which funds Social Security and disability insurance. All money would be repaid to the Social Security trust fund through general revenues. . .”
Would that be just like all the other IOUs the gov’t has paid back there? (Not)
Even if they’re thinking this way, it’s not a good idea to put it in these terms. Credibility has some purpose, no?
Until the wages in the USA equals that of China Corporations will not hire in the U.S. Then they will want to bring back all that money into the USA tax free of course.
President Wimpy: “I would gladly pay you Tuesday for a tax cut today.”
After you have eaten your seed corn, what to do next. It’s over.
Although I am against giving any tax breaks to the parasites on Wall Street (they are parasites because they make money on the backs of productive workers without producing any needed goods and services themselves), I would support one to those who invest in the US and hire US workers NOW! They should be required to provide benefits to the workers, especially, health insurance benefits, until there is a single-payer health insurance that covers every one. If the corporations do not want to deal with health insurance for workers, they should support a national health insurance policy.
As someone who has been in business for almost 30 years I can attest that this proposed tax cut is bullshit. It will have zero affect on hiring other than at the Caribbean resorts at which the business owners/corporate management will be spending their new found money. No one in their right mind is going to hire someone at “X” amount simply so they can save 6.2% of “X”. The previously passed “Hire Act” had no affect on hiring, it simply reduced the cost of employees who would have been hired anyway. Businesses hire people they need. They don’t hire people simply because they can afford to. Politically I am far away from most people on this blog (I am far to your right) but this is the worst form of Corporate Welfare. Obama and his people are desperate and this shows it.
It’s the working and middle class that are desperate. Obama already has a walnut lined corner office waiting for him on Wall Street.
Yep, and I’m sure Geithner’s and Bernanke’s are right down the hall.
Yes, but on the bright side, I’m now Roundup Ready!
Exactly. Until businesses actually need more workers to meet demand for their products they won’t hire any (other than perhaps as a token loss to keep the hiring incentive money flowing).
This is also part of the Obama set up to do away with Social Security. They have just recently stopped saying that Social Security is adding to the debt. That was because the system is self-funding. They have surpluses for decades. With the gradual reduction in payroll tax, on both the employee and employer, Obama is slowly moving SSN to be just another part of the bloated discretionary budget. They will eventually be forced, although his staff will be the first to tell you that he prefers not to cut SSN, to raise the age eligibility and benefit level. They have already started the campaign line that they are not for terminating the entitlements like the Repubs. What they are leaving out is that they are for crippling them.
That is the problem with having academics as economic advisors (Orszog, Romer, Goolsbee). They have no clue as to how the real world works. At least the Hire Act had some theoretical basis to support it. I would like to hear an explanation of how getting a tax break for already hired employees is going to increase hiring. Unless these guys really are that stupid I suspect the intent of the proposed tax cut is to pad corporate profits to prop the ponzi stock market. It’s the only thing they have going for them.
Too little too late. Nothing this President, this Neo-Hoover, would ever think to do will be enough. It’s the GOP’s White House to lose.
Hey, eCAHN, help me out, here, will you? I am under the impression that companies hire on the basis of demand. How do employer side tax cuts, of any description, encourage hiring? I’m still unemployed and still have no money to increase demand for any company’s products. There’s a lot of me’s out here in Ordinaryville, and we’re all “fiscally constrained.” I understand that O and his gang are living in the veritable lap of luxury–at out expense–but how is it they’re so perceptually constrained? Might we guess self-referencing self-interest? I don’t want to seem unkind.
Another stealth measure to insure that social security will be even deeper in the hole when the time comes to have to actually do something about it.
Look what voting for the ‘lesser of the evils’ has gotten us.
We should all vote for a third party candidate in 2012 (or write in whoever you like). Otherwise, it will be business as usual for the dems and repubs.
And BTW, Romer advocates this payroll tax cut. Brilliant, I’m telling you. Academics really need to get out more.
In essence, this is how Hoover went wrong, listening to and taking advice from the wrong people. Very Important, Very Serious, Very Highly Regarded people. The Very Best the upper echelons of business and finance had to offer. And Very Much about their own personal business, what a surprise.
The social safety net: death by a thousand cuts.
Maybe after 2.5 years of trying Republican solutions, it’s time to try something else. Or would that just be too crazy to contemplate?
Good Point…Barak Hoover. Yeh, I like that!!
So will progressives buy the killing Social Security with kindness approach?
Club for Growth said under Reagan that the goal was to kill revenue so that benefits could be killed.
Who knew Obama was a Club for Growth member? – although we did know he looked not at FDR, Truman, JFK or LBJ or Carter or Clinton for inspiration but instead looked to Reagan.
Surely, Shirley, there are more effective expenditures that better multiply the effect of a dollar of revenue or foregone revenue than cutting the employers’ contribution to a SS fund the government contends is already short of dollars.
If he and his team are so desperate, why don’t they actually fight for a plan that works?
That is the million dollar question. I see two possible answers:
1.) They are totally clueless and actually believe the tax cut will work.
2.) They are totally corrupt and want to reward the corporate welfare trash.
The proposed tax cut is simply another huge tax cut for the rich. As an example, I do contract work with a company in Ohio that has a payroll of $10 million/year. This company is owned by two individuals, as an “S” corporation, and they will net a $620,000/year tax cut as a result of this. Publicly owned “C” corporations will pass this cut along to top management as additional compensation. No additional hiring will result from this.
Because they don’t know any better. Really, it’s very simple–and so are they.
Obama would never risk tarnishing his “brand name” on something that might not pass.
I think it’s ideology. They refuse to do anything that smacks of the dreaded SOCIALISM.
It makes no difference if you vote D or R they are one in the same. Who cares if a R wins the WH?
The CBO reasoning on an employer payroll tax cut is that the employer’s predominant response will be a lowering of the prices of their goods. This will encourage purchasing and demand leading to new jobs. So in effect it would act similar to a cut in payroll tax on the employee side.
How they conclude that employers will do this is a mystery since in their same report they say that an employer could also pass on the savings to employees in the form of higher wages(not likely), retain it as profit (more likely), or hire slightly more labor(not likely). Since many companies are not cash poor they already have the luxury of lowering prices if they thought it would spur demand and increase sales and profit-but have not. So its hard to see how the relatively small amount of extra cash from the payroll cut savings changes this equation. Similar experiments in Europe with their value added tax have not worked.