Warren Mosler, economist, perturbed by the misunderstanding of monetary policy by the current and past administrations, is running for President in 2012.  He has been speaking at the Tea Parties, explaining to taxpayers that Washington is either at best ignorant of economic policy or at worst deceptive.

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Federal Reserve Chairman, Ben Bernanke, has indicated that the economy is improving and the recession is ending. The media informs us that the stock market has added $2 trillion to national wealth since the market lows in March 2009. However, the stock market is still more than $2 trillion from its previous high in 2008 and real estate values are down $6 trillion and still declining. Not only has nominal wealth evaporated, but incomes are also treading heavy water. The Government informs us that unemployment is up to 9.8% with the only ‘good news’ being that the rate of job loss has declined. In July, there were only 2.6 million jobs available for 14.5 unemployed.

Also many are working part time when they want full time jobs. Americans are taking lower paying jobs and incomes are on the decline, especially when adjusted for the massive bonuses paid to bank employees and CEOs. The Department of Labor reported that young Americans (16 to 24 years old) have the highest unemployment rate ever (25.5%, although the New York Post has it at 53.4%). Regardless, America has a large and growing under utilization of labor among all age demographics.

At the same time, state tax collections have been declining and budgetary constraints (balanced budget requirements) are placing enormous pressures on state finances, especially California.  In response, states and local municipalities are cutting jobs (teachers, policeman etc.), services, university, and infrastructure funding. Additionally, the states and municipalities are increasing taxes to gain the additional revenues.

The Administration and Congress are informing the public that everything is beginning to look good because of the trillions of dollars that they provided to repair the banks. The problem is that they have it backwards; the economy is best fixed from the bottom up rather than the top down.

In June 2008, Warren Mosler proposed three ‘bottom up’ policies to fix the economy. The first proposal is for a full Payroll Tax Holiday for both employees and employers. This stops the government from taking approximately $20 billion a week from people working for a living (a total of $600 per month for someone making $50,000 per year) rather than using that $20 billion to keep some bank limping along. The Government would still continue to credit the social security and the Medicare accounts, so employees and employers will never have to pay back the monies they received. The Payroll Tax Holiday would restore income to American workers (and businesses) to help make their loan payments, rents, pay bills, and sustain their households. The real economy would benefit as Americans both reduce debt and resume consumption. Banks will benefit because there will be fewer delinquencies and foreclosures in non fraudulent mortgages, which will also help limit home price declines.  The Payroll Tax Holiday would also reduce corporate cost structures and help contain prices and inflation. The payroll tax is regressive (it is not graduated based on income like the income tax), so the Payroll Tax Holiday will benefit those in the lower income levels the most.  This “People Power” solution will be far more effective than the Bush and Obama trickle down solution.  And the Government can decide to end the Payroll Tax Holiday should the economy become too strong and inflation become a concern.

The second part of the proposal would to assist the states by providing them with $150 billion in revenue sharing on a per capita basis with no strings attached. This will help the states to fund operations, keep workers employed, provide necessary services and fund infrastructure projects.

The third part of the proposal would be to fund an $8/hr National Service job for anyone willing and able to work that includes full federal health care coverage. This, like the Payroll Tax Holiday, addresses unemployment from the ‘bottom up’ rather than the ‘top down’. A determination can be made as to what the jobs will be, but the goal is to improve America by providing useful output. It will also provide for a far superior price anchor, as it has been well documented that private employers more readily hire those already working over anyone who is unemployed.  In 2001, Argentina introduced its Jefes de Jugar version of the Mosler Plan that employed nearly 2 million people that had never worked in the private sector, and within two years 750,000 moved up to private sector jobs.

If any of these proposals strikes a personal chord regarding how we can rebuild our economy, please forward them to your elected representatives in Washington. These are not proposals for out of control, top down, trickle down, Government spending on corporate welfare that insults the majority of Americans working for a living, but fundamental, proven, bottom up solutions that reward that vast majority of Americans that work for a living and struggling to make ends meet.

Sources

  1. Mosler 2012
  2. Barry Ritholtz, Read it here 1st: Truest Picture of Excess Labor Supply
  3. Barry Ritholtz, Post-Recession Employment Arithmetic
  4. Bloomberg, U.S. Home Prices May Be Lost for a Generation
  5. Bloomberg, Unemployment Confronts Obama Rhetoric With Chronic Joblessness

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “Mosler: PAYROLL TAX HOLIDAY”

  1. worth says:

    Some excellent ideas, a few of which I (and others) have brought up ourselves.

    One MAJOR potential stumbling block for him though: if I read the picture correctly at his campaign site, he would appear to have the longest hair of any President since, perhaps, Franklin Pierce.

    Tough to overcome, but by no means insurmountable.

  2. franklin411 says:

    I don’t think the payroll tax holiday will help, frankly. There is one and only one reason why employers add help: Because they need help. Period.

    However, I do agree with him that we need to have some sort of basic jobs program where the government hires the unemployed to do work that needs doing. We have millions of unemployed paper-pushers from the financial industry, but the states are struggling to meet their administrative demands because they don’t have enough people to handle the paperwork.

    It’s funny, though. We all know that if the Obama administration were to propose such a jobs program, the GOP would attack it as “socialism.” But we also know that Congress can’t afford to ignore the unemployed, so both the Dems and the GOP support extending unemployment eligibility.

    The long and the short of it is that it’s “socialism” to hire people to work, but it’s not “socialism” to give them a handout!

  3. worth says:

    f411, you’re probably right about the GOP attack on socialism. But it still needs to be proposed.
    Here’s how I had phrased a similar solution back on Sep. 18:

    “I’m referring to the G.I. Bill, of course. But why is it limited to armed forces? Why can’t there be a Social Worker Bill that would help pay for a degree for an aspiring Psychologist in exchange for 4 years of government social work? Why can’t there be an Engineer Bill that would help pay for a Civil Engineering degree in exchange for 3 or 4 years of bridge-building or road construction, or an Electrical Engineering degree in exchange for a few years of service at a solar panel manufacturing plant, all while living in government-sponsored dorms with all meals and health coverage provided, just as is the case with service in the armed forces?

    These programs would provide real-world experience, showing young people how it is on the front lines of their chosen field of dreams, and then give them every opportunity to reach the pinnacles of their professions.”

  4. In 2008, I wrote, with Warren’s assistance, the following article:

    Is It Time For a FICA Holiday?

    Traditional thinking has produced an economic disaster, which the same traditional thinking cannot solve. As the U.S. and world economies slip into recession, we must remember this ultimately is a bookkeeping crisis. The housing “market” was destroyed, but not the actual houses. They still exist. Nothing real has been destroyed. Instead, we are starved for money.

    This problem should be easier to remedy than a food shortage, water shortage or wartime destruction, because a money shortage can be cured by the simple expedient of adding money – something the federal government is uniquely empowered to do.

    We propose a FICA payroll tax “holiday,” whereby the U.S. Treasury will make our Social Security and Medicare payments for us. This will add about $10 billion per week to our take-home pay, and another $10 billion to business income, both of which urgently are needed. When we eliminate this partly double, severely regressive tax, we will give consumers the income they need to make mortgage payments, to pay bills, and to do the shopping American business craves. The FICA holiday also will provide business with money for jobs and investment.

    In contrast, the “top down” approach (saving Fannie Mae, buying toxic mortgages), while necessary, does not directly address consumer/business money needs, and has had only modest effect.

    Common knowledge holds that Social Security and Medicare will face bankruptcy even with FICA. So proposed fixes invariably include benefit cuts, reducing consumer incomes, or tax increases, cutting consumer and business spending power – the opposite of what our economy requires.

    Many people fear federal deficit spending when it supports Social Security and Medicare, but not when it supports the military. Social Security spending for 2008 is approximately $600 billion, about equal to the defense budget. Ironically, both candidates for President believed Social Security will run out of money and the military will not. The $1 trillion in “stimulus” spending was authorized without increased taxes. Both candidates advocated tax cuts.

    Even during the darkest days of the Great Depression, the federal government never ran out of money. Massive government spending, before and during World War II, helped lift us from the Depression.

    In 1971 President Nixon eliminated any risk of government insolvency by ending the last vestiges of the gold standard. At the stroke of a pen, he assured that neither the government, nor any of its agencies, could run short of money. Social Security and Medicare, being two of those 400+ agencies, are immune from bankruptcy.

    If Congress authorizes the Treasury to make our Social Security and Medicare payments for us, thus allowing our take-home pay to rise, the economy will begin to recover. The elimination of FICA deductions would provide consumers and business with more than a trillion additional dollars annually, exactly what a healthy economy needs.

    Won’t this increase the federal deficit? Yes, but President Nixon’s signature guaranteed the government never will run short of money to service its debts. This act removed taxes as a necessary source of federal money. Together with federal spending, taxation became a mere tool to create optimal output and employment. Whatever deficit accomplishes that goal is the right size.

    Doesn’t a large deficit cause higher interest rates? No, interest rates are set by the Federal Reserve. The government can set rates at any level it wishes.

    Doesn’t a large federal debt create a shortage of lending funds? No, the more money the government pumps into the economy, the more lending funds are created.

    Won’t our children have to pay for the increased deficit? No, the government owes the debt and easily services a debt of any size. Our children are not the debtors. (In many cases, they even are the creditors.) Because the “right” size debt will continue to grow forever as our economy grows, it never should be reduced or paid back.

    Meanwhile, each year the increased debt will help keep output high and unemployment low, benefiting our children with additional income, goods and services.

    Won’t increasing the deficit by eliminating FICA, cause inflation? President Carter had modest deficits and high inflation. President Reagan had the highest deficits in American history and modest inflation. Contrary to popular wisdom, federal debt has not caused inflations, recessions, high interest rates or any other negative economic effects. On the contrary, large deficits have been associated with economic growth.

    In summary, we offer new thinking – an accounting fix to an accounting problem: Eliminate FICA and pay for Medicare and Social Security the same way we pay for Congress, the military, the Supreme Court and every other federal agency, by functionally folding these two agencies into the general fund. The economic crisis has presented us with the rare opportunity to accomplish two important goals: Permanently fix the seemingly intractable Social Security and Medicare problems, and energize our economy.

    Rodger Malcolm Mitchell
    http://rodgermmitchell.wordpress.com