The proposed economics plan by the White House is based on supply-side economics, rather than on Keynesian economics, to reduce unemployment and to spur job creation. What's under discussion for this economics plan rather than additional government spending via infrastructure and direct job policies?
- Business corporate tax breaks.
- Payroll tax cut for the employer, rather than for the employee.
- A permanent extension of the research and development tax credit.
Now, this economics plan is designed to get Republican votes, and from the view of the White House, to get this economics plan through an increasingly hostile Congress. This is couched in the terms of what is "passable" rather than for the political scope of the argument. One can argue that this is a weak approach to our economic problems and would not be sufficient enough in energizing the base for the mid-term elections.
Even this "passable" plan would be heavily opposed at every opportunity by Republicans in Congress. So then one can say, "Why not go for a big scale jobs plan?" since such a plan would have the political effect of energizing the base and putting the Republicans on the defensive.
That's the kind of question that the White House should ask themselves with the knowledge that the Republicans are determined to say no and to stall bills like the jobs creation bill in the Senate.
And as for the payroll tax cut, what's the difference between a payroll tax cut for the employee and a payroll tax cut for the employer? Here's Dean Baker on why that difference is crucial:
Baker distinguishes between two possible payroll tax holidays. There's a difference, he says, between giving employees a payroll tax break and giving that break to employers.
If employees get the cut, that's money in their pockets and they'll go spend it -- almost right away. Not so if the cut goes to employers.
In textbook economics, Baker says, "the basic story is that from the standpoint of the employer they don't care if they pay a dollar in taxes or a dollar in wages.... Payroll taxes come pretty much dollar for dollar out of wages."
Dean Baker cautions that passing a payroll tax cut would have the effect of being cited for political reasons by people looking to cut Social Security in the future. However, I disagree with Dean Baker on this, since Robert Reich points out that a payroll tax cut for the employee can be coupled with an payroll tax increase on income above $250,000 to make up for the revenue loss.
Democrats should propose eliminating payroll taxes on the first $20,000 of income, and making up the revenue loss by applying payroll taxes to incomes above $250,000. This would give the economy an immediate boost by adding to the paychecks of just about every working American. 80 percent of Americans pay more in payroll taxes than they do in income taxes. And because lower-income people would get most of the benefit, it's likely to be spent.
Baker also points out that the permanent extension of the research and development tax credit would have no stimulus effect, thus casting doubt on its effectiveness in the WH economics proposal.
With that said, here's Robert Reich on the Great Jobs Depression:
It is not that America is out of ideas. We know what to do. We need massive public spending on jobs (infrastructure, schools, parks, a new WPA) along with measures to widen the circle of prosperity so more Americans can share in the gains of growth (exempting the first $20K of income from payroll taxes and applying the payroll tax to incomes over $250K, for example).
The problem is lack of political will to do it. The naysayers, deficit hawks, government-haters and Social Darwinists who don’t have a clue what to do would rather do nothing. We are paralyzed.
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But the pain and suffering of tens of millions continue. Government revenues continue to drop, and the safety nets and public services they rely on are subject to even more cuts.
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The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.
In cases of political paralysis such as this, we can only watch as "passable" policies such as those mentioned above are put forth, only to fail. And for ourselves, we must focus on saving our own progressives, which are in serious electoral danger, such as Barbara Boxer, Russ Feingold, and others.
It's time to take action in making sure we have our progressives in place for the incoming Congress. Choose your own progressive Democrat, get yourself educated about that Democrat, and work to make sure that we don't lose that progressive Democrat to a right-wing reactionary. I am not advocating that you hold your nose for a Democrat you don't like---but that you find a Democrat that you DO like, and work like hell to re-elect that Democrat.
In working to preserve the Democratic majority in Congress, we help keep Speaker Pelosi in place, and the asshole John Boehner in his own place as Minority Leader. And as for the Senate, there are noteworthy Democrats to save and to canvass for.
I'll be profiling some of these progressive Democrats next week that I think would be an excellent asset for Congress, and our own progressive incumbent Democrats that deserve to be re-elected to another term.