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The Stimulus bill is simply too small.  All reasonable economists think we will have a demand shortfall approaching $2T over the next two years.  It may be much larger.  At around $800B, the bill only makes up 30% of the shortfall, and about 50% of it is buried in longer term projects.  

We can expect massive job losses to continue over the next few months to continue.  What happens if we see another 6 to 8 months of job losses at 500K a month?  

  1.  The unemployment rate reaches 10-11%+, not 9% as expected.  
  1.  The demand shortfall will approach $3T over the next two years.  
  1.  The U.S. has a political debate about additional stimulus
  1.  We see the payroll tax holiday implemented.  

We are in a horrible financial situation right now.  We are loosing a million jobs every 6 weeks.  

The only stimulus that is both large enough and fast enough to stop the job losses is a payroll tax holiday.  

Since we did not get it now...

We can expect to see this politically feasible after a few million more jobs are lost.  

At our current rate of job losses, in May of this year we will have lost 2 million more jobs.  In July, that will be 3 million more jobs lost.  This magnitude of job loss changes the political calculation.  

Additionally, as the final numbers come out for employment, we can expect the birth/death (business) numbers used in the calculation of unemployment to be rectified.  Dean Baker estimates these additional losses to be on the order of 150,000 jobs over the last 3 months.  We are going to see massive downward revisions to the numbers of jobs lost over the last 6 months.  

So where does this leave us in May, June, and July of this year?  Well for one, the politically impossible now will become possible when millions more people are out of work.  When states start to default on unemployment benefits, when the stimulus is not seeming to work yet, a round of tax cuts will be proposed.

At this point, well-known liberals and even libertarians are finally starting to pick up on something I said months ago.  The only stimulus large enough and quick enough to end this recession is a payroll tax holiday.

I hope that you are still working so you can save or enjoy this 7% pay raise.

Originally posted to mickslam on Sat Feb 07, 2009 at 04:11 PM PST.

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Comment Preferences

  •  And kill Social Security (2+ / 0-)
    Recommended by:
    Dartagnan, dewley notid

    and Medicare?

    "...this nation is more than the sum of its parts ..." Barack Obama-18 March,2008

    by Inventor on Sat Feb 07, 2009 at 04:15:15 PM PST

    •  You know, (3+ / 0-)
      Recommended by:
      dewley notid, luckylizard, Flagship

      Setting aside the fact that I don't think it would kill those, at this point, I'd just as soon say to Obama, "Yes, whatever.  Just push money into the system, you idiot."

      It's unbelievably frustrating.  People do not get it.  Watching these "centrist" assholes yesterday was deeply depressing.  This bill is not big enough.  It's not even close.  And what they did to it -- stripping out the state and local aid, for example -- is just fucking insane.

      We're ruled by idiots.

      "Words ought to be a little wild for they are the assault of thought on the unthinking." - John Maynard Keynes

      by Drew J Jones on Sat Feb 07, 2009 at 04:57:24 PM PST

      [ Parent ]

  •  Yep, we should just all stop paying any taxes (4+ / 0-)

    and then watch the US meltdown into a third world country.

    The US marginal tax rate is one of the smallest in the G7.  We've been living the easy life without paying for it.

    Welcome to the world.

    Behind every great man, there's a woman saying "Stand up straight"

    by captainlaser on Sat Feb 07, 2009 at 04:19:22 PM PST

  •  We saw how well that Gasoline Tax Holiday (2+ / 0-)
    Recommended by:
    0hio, dewley notid

    worked. And we all those tax cuts Bush gave his rich buddies worked. They doubled their incomes, whereas more Americans fell into poverty.

    As Paul Krugman noted (he has a Nobel prize, do you?) that tax cuts do not guarantee that the money will be spent and if it is there may be nothing tangible to show for it. He said that if the government spends money on a project, even when the work is done, say like building a new road or a park, we'll have the benefit of having a new road and a new park.

    So forgive me if I tell you your payroll tax holiday is a bad idea. Also, the Federal government can go bankrupt. America can collapse. We could easily see Weimar Republic era inflation. We could see a balkanization of America replete with ethnic cleansing and civil war. A second great depression is not the worst thing that could happen to us.

    Bush left a flaming bag of poo on America's doorstep. We need to put it out, but don't step on it.

    "You know what's more refreshing than having a President who speaks in complete sentences? A President who behaves like a responsible adult."

    by londubh on Sat Feb 07, 2009 at 05:18:12 PM PST

  •  Most states are reporting (1+ / 0-)
    Recommended by:
    luckylizard

    huge budget shortfalls. This not only endangers the jobs of people who work for the states and the counties who rely on state money, it also cuts services at a time when people need them more. Payroll taxes also fund the states and counties and the last thing they need is a larger shortfall from lack of funds.

    On a different note, it will be interesting to see what happens to for-profit health insurance with this many people out of work. How soon until one of the big insusrers implodes, and comes to congress, hat in hand, demanding a "too big to fail" bailout?

    "YOPP!" --Horton Hears a Who

    by Reepicheep on Sat Feb 07, 2009 at 06:04:36 PM PST

    •  The holiday would be funded by the treasury (2+ / 0-)
      Recommended by:
      Reepicheep, luckylizard

      We are not talking about payroll taxes being eliminated and not paid.  

      They should be paid by the treasury.  In other words, the stimulus of a middle class tax cut without the pain of the cuts in state spending

      I am repeating myself, and thats ok.

      by mickslam on Sat Feb 07, 2009 at 06:13:01 PM PST

      [ Parent ]

      •  Well, old buddy, if what you are proposing (0+ / 0-)

        is true, why not have a federal income tax holiday?

        Then again, why not a all inclusive tax holiday?

        A tax cut is a tax increase at some point in time.

        There is no free lunch, somebody, at some point in time, has to pay.

        Additionally, any attempt to change, attack, reform, exploit, etc the social security trust fund is just another repub talking point.

        Counting one dollar per second, it would take 32 million years to count to one Quadrillion. A lot of derivatives...

        by 0hio on Sat Feb 07, 2009 at 09:26:03 PM PST

        [ Parent ]

        •  That would be too large of a stimuls (0+ / 0-)

          and taxes drive the initial demand for motaxes drive the initial demand for moneyney.  Without taxes, eventually nobody would want to acquire U.S. dollars.  

          Because we've misunderstood the money creation process, we think we need to balance the budget.  We do not.    Balancing the budget as a desired economic outcome is factually incorrect.  Budget deficits create money, and budget surpluses cause recessions and depressions.

          Finding the right amount of deficit spending is difficult.  The deficit amount needs to match economic growth and the demand for savings.  As we are the worlds reserve currency, we would need to determine the amount of desired savings by the entire planet.

          If we have too little deficit spending, we get deflation.  If you average U.S. deficits over the last decade, then you will see why we are facing substantial deflation.  

          I am repeating myself, and thats ok.

          by mickslam on Sun Feb 08, 2009 at 06:14:11 AM PST

          [ Parent ]

          •  I don't think your making sense (1+ / 0-)
            Recommended by:
            0hio

            If we have too little deficit spending, we get deflation.  If you average U.S. deficits over the last decade, then you will see why we are facing substantial deflation.  

            Are you blaming the collapse of 2008/2009 on the few years of surplusses we had under Clinton?

            We have had HUGE deficits under Bush.  Are you saying that these deficits will take another ten years to be seen in the economy?

            Religion gives men the strength to do what should not be done.

            by bobtmn on Sun Feb 08, 2009 at 08:30:16 AM PST

            [ Parent ]

            •  I am (0+ / 0-)

              Surpluses are bad for the economy in that they eventually produce deflation.  We had a gigantic expansion of credit under Bush that temporarily hid the deflation, and because it was an expansion of credit instead of money creation, caused an asset bubble.

              I know this is totally new economic theory -but please read this post, and read this one too.

              I will warn you, that once you understand the money creation process, there is no going back, so read at your own peril.  thanks for the kind discussion

              :)

              I am repeating myself, and thats ok.

              by mickslam on Sun Feb 08, 2009 at 09:01:19 AM PST

              [ Parent ]

    •  They don't fund states (0+ / 0-)

      "Payroll taxes" usually refers to Social Security and Medicare.    States may get some of the Medicare money for medicaid, but the bulk of the money just gets used to cover up the federal deficit from other areas.

      Religion gives men the strength to do what should not be done.

      by bobtmn on Sun Feb 08, 2009 at 08:24:56 AM PST

      [ Parent ]

  •  Good idea, but it is not new (1+ / 0-)
    Recommended by:
    mickslam

    This idea has been around forever and always beaten down by the repubs.

    At this point, well-known liberals and even libertarians are finally starting to pick up on something I said months ago.  The only stimulus large enough and quick enough to end this recession is a payroll tax holiday.

    The righties love the payroll tax because it is regressive, and taxes only work but not investment income.

    (using round numbers for convenience)

    The rich pay very little of it.   A 15% payroll tax on the first 100,000 income is $15,000 dollars.  This is about the maximum anyone pays in payroll tax.  

    If you earn $700,000 per year its only 2% of your income.   John McCain doesn't even think $700,000 is rich!

    The righties don't want the payroll tax to be seen as a "real tax", but as "insurance".  That way, they can argue for lower taxes, while at the same time hollering for the payroll tax to be raised, or the SS benefits to be cut.  

    The payroll tax is the righties best friend.  It funds the huge deficits so they can give money back their board room cronies, and they can at the same time criticise social security for being out of control government spending.

    Democrats should be advocating for the complete elimination of the payroll tax.  It should be replaced by a combination of production tax, like a VAT and an investment transaction tax.

    In that way, we would be taxing how all people earn money, not just workers.

    Religion gives men the strength to do what should not be done.

    by bobtmn on Sun Feb 08, 2009 at 08:22:15 AM PST

    •  it has been around - probably should be repealed (0+ / 0-)

      thanks bobmn

      I am not trying to take credit for this idea.  But  in context of this crisis, we are talking about a tax holiday.

      I do not know why the government insists on taxing only the first 80k in income, or why it insists that social security be paid with a separate tax.

      But this is the world we live in, and the crisis we face.

      I am repeating myself, and thats ok.

      by mickslam on Sun Feb 08, 2009 at 08:57:04 AM PST

      [ Parent ]

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