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Reich: Eliminate payroll taxes to improve economy

Robert Reich

TEXT OF COMMENTARY

Bill Radke: Yesterday we asked, are we standing on the lip of a double-dip? Recession, that is. I talked to an economist who said if the economy does slip back into recession, state governments would be in even deeper trouble, and they would look to a federal government that's got its own mountain of debt. So what to do?

Here's Commentator Robert Reich.


Robert Reich: It looks more and more like we're heading toward a double dip. That's because consumers can't and won't spend enough to get the economy moving. They're still deep in debt, can't use their homes as ATMs and have to save.

Yet Washington is stymied on what to do. Keynesians want more government spending. Supply-siders want more business tax cuts. Deficit hawks say no to both.

But here's an idea that might command everyone's support: Eliminate payroll taxes on the first $20,000 of income. Payroll taxes, you recall, include Social Security, Medicare and unemployment insurance. Make up the revenue loss by applying the payroll tax to incomes above $250,000.

This would immediately stimulate spending by adding to the paychecks of just about every working American. Right now, 80 percent of Americans pay more in payroll taxes than they do in income taxes. And lower-income workers, who would receive the largest proportion of the benefits, are more likely to spend the extra cash than are people with high incomes.

In addition, this idea would make it cheaper for employers to hire, because they wouldn't have to pay their share of the tax. It wouldn't add to the deficit. Revenues would be made up by applying payroll taxes to income exceeding $250,000 -- which is fair. As of now, the Social Security payroll tax doesn't apply to any income over $106,000. Having the tax kick in again at $250,000 draws on the top 3 percent of earners, who now rake in a larger portion of total income than at any time since 1928.

So how to get the economy moving again? Eliminate the payroll tax on the first $20,000 of income and apply it to income over $250,000 for two years.

How to keep the economy moving? Do this permanently.

Radke: Robert Reich is professor of public policy at the University of California Berkeley and former secretary of labor for President Clinton.

Next week in this spot, we'll hear a conservative take on the news.

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Where has THIS been?! We all know the economy can't turn around until people start SPENDING! Duhhhhh! I know something similar was proposed by President Obama in the past but the Republicans shot it down. Since the Republicans got their butts kicked in the 2008 elections they've had to choose the Deficit as their "Crusade Platform" and a no-brainer logical, economic strategy like this will just be given some negative label inferring increased deficit, blah, blah, blah. I work for the department of labor and to say the job market is the worst it's EVER been doesn't really state what the job possibilities for middle-class and down really! Per capita it's practically non-existent! Everyone scared to death of loosing their job, IF they have one, and all are cutting expenses to the bone if they have any clue about the current national & global economies?!

Support Dr. Reich and his idea!
For those who are against this idea, try to understand human society as a whole. The top 3% pays tax that are long due will get the economy moved, in turn, their businesses will get better a profit, money going back to their pocket. Don't pay the tax? The economy sucks like hell, losing profit, you still lose that part of money, much bigger part. Socialism is no all evil, just like capitalism is not all perfect!

While the Pro. Reich's numbers may add up, I still don't like it. One of the selling concepts behind Social Security and Medicare is that while you were working you contributed to it, therefore you deserve the benefits when you retire. So if most of the people who will be using it don't contribute to it, I find it hard to believe that they would then deserve the rewards. So how about we adjust it a little bit and have a below 250,000 FICA rate and an above 250,000 FICA rate.
As for Bob's comments about the rich just being fortunate, I must disagree. While I'm sure he can pick out some examples of this being true, by and large it is not true in the US. So many families change their wealth rankings in the US every generation. Many people who are rich work very hard for their money, and worked hard in school, while so many others were off playing. Yes, there is a degree of luck, but by and large every rich person in the US could lose all of their money in a matter of days with a little unrestricted spending.

Bob's "something for nothing" viewpoint comes forward again. The SS benefit is based on each person's *taxable* income, so does he propose that we lower the benefit for those who don't pay the taxes? Or does he merely want to continue "soaking the rich"?

"To paraphrase the Bible, to he that more is given, more will be expected." How about "From Each according to his means, to each according to his needs"- Karl Marx. I'm always interested to hear Prof. Reich's comments, but I agree with his economic assessments much more than his solutions. In this case what he's proposing is simply Marxist wealth re-distribution (and I'm a liberal progressive who makes less than 6 figures!). SS/Medicare & unemployment are already seriously underfunded. There is a payroll cap, but there are also caps on benefit eligibility.
Want to really fix the economy? Stimulate manufacturing, not consumption. Really fix health insurance costs, which is crushing small business- not the tax increase/giveaway to insurance companies they just passed. And stop the automatic raises and deluxe benefits of public employees, borne by taxpayers.

Mr. Reich's suggestion of a 2 year payroll tax holiday is brilliant. It would not only immediately jump start consumer spending - 70% of the economy, but if extended to reductions in the required matching employer payroll tax contributions, could spur a hiring spree unlike anything we have seen in years. It's too bad our congress and the White House seem to think that government, and not consumers and small business know best how to expand the economy. By making it cheaper for US businesses to employee US workers, such a policy would also help to make US made products more competitive at home and abroad.

Listeners must wonder why Robert Reich seems unable to understand the financial situation of many Americans "out there" beyond his Ivory Tower. In his most recent commentary, "Eliminate payroll taxes to improve economy", Dr. Reich actually wants to shift the tax burden to higher salary earners. Does he understand that almost half of all such salary/wage earners have home mortgages which are underwater with negative equity? Does he understand that the true "wealth", of many Americans about to retire, is next to zero? He seems to imply or assume that the "top 3%" of wage-earners are "rich". If ever there was a disconnect between salary income and wealth, it is now. In locating and taxing "wealth" in this country, income taxes and payroll taxes are grossly off the mark. Would Dr. Reich suggest assessing a home's value by the income of its owners? Of course not. But he suggests that a person's "wealth" (accumulated assets, Websters dictionary) can best be assessed by looking at his income. Now is not the time for stereotypes, in order to locate and tax "wealth". Stereotyping (wealth equals income) is both unfair and dishonest. If Dr. Reich wants to identify and tax true wealth (accumulated assets), his first priority should be to institute a substantial Estate Tax ("death tax"), and set up an IRS electronic network to locate and tax true wealth, in the form of stocks, real estate. To do otherwise, is to accelerate the growth of the Super Rich class, at the expense of the Middle Class. The war on the Middle Class appears to have an unwitting and insensitive advocate, in the form of Robert Reich.

This is not necessarily an original thought by R Reich.
From comments by Mark Grimaldi in the Navigator Newsletter in July of this year:
"My theory was, and still is, when a recession
hits the government needs to make
sure the root system of the economy (jobs)
is hydrated, by cutting FICA taxes. This is
the only tax cut that will instantly put money
in employers' and employees' pockets.
Employers' bottom line expands instantly
and employees' disposable income
increases instantly. If an employer chooses
not to invest the tax cuts in their business,
then the company's profit will grow; this
would create more tax revenue for the government.
If that same employer reinvests
the tax savings into their business, this will
create more jobs, and more tax payers.
That is also still a "win" for the government.
Jobs will be saved and consumption will be
supported. The best part is that the cost to
the government (in decreased tax revenue)
will only go to the dehydrated. The private
sector will only take from the government
what it needs, there is no excess. A slowing
economy will take more government
spending than a growing economy, exactly
the way it is supposed to work. A tree takes
more water than a plant, but it also gives
out more oxygen. Small and large companies
will get exactly the amount of tax cuts
they need and the business owner will
decide the best way to grow their company.
The Obama "stimuless" created jobs by hiring
people to water everybody's lawn, even
in areas where there was no drought. The
Navigator "stimulus" plan puts money in the
employers' and employees' pockets on day
one. This will support consumption and
lower the unemployment rate, thus reducing
the unemployment benefits paid out to
those out of work. Then as the unemployment
rate drops, the FICA tax is phased
back into the economy, on a top down
basis.
The Navigator "Stimulus" Plan
Cutting payroll taxes will:
Put more money in workers' pockets
instantly
Make all businesses more profitable
Create new consumption demand
Reduce unemployment
Under this plan the government will experience
short term deficits. However, the
spending will be targeted, timely and temporary."

I hope there is NO free ride, but a temporary reduction in this rate might help.

While I agree with Mr. Reich's concept of taxre-apportionment, I respectfully disagree with the idea that the tax break with provide economic stimulus. In fact, those at the bottom are most likely to spend these dollars in two places: at the pump and at a discount mega store like Walmart. In both cases, that means the dollars get shipped overseas, only to be loaned back with interest. The greatest stimulus would come if we could come up with a "buy local/buy made in the usa" stimulus. Then each dollar would multiply as it moves from one local producer/consumer to the next.

This has to be one of the best ideas I've ever heard. Why should payroll taxes be something that is not paid by the wealthy. The weighted burden of payroll taxes is on the poor...not even the middle class. I say shift it to those making above 250k. The problem is...how do you actually get something like this implemented? Neither Congress nor any Presidential administration would tax the people that primarily donate to their re-elections. Just one more reason for publicly financed elections.

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