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Commentary

Reich: Eliminate payroll taxes to improve economy

Marketplace Staff Aug 25, 2010
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Commentary

Reich: Eliminate payroll taxes to improve economy

Marketplace Staff Aug 25, 2010
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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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