Saturday, October 2, 2010
A Tax Cut Both Parties Should Love--But Don't
Workers may receive a 6% increase in paycheck as a form of economic stimulation for their next pay check. For the holiday season, the government may cut the 6.2% payroll tax paid by both employers and employees. This is a highly regressive tax, only taxing up to $106,800. This means that low and middle wage earners are hit the hardest with the tax. Economists argue that a high payroll tax prevents employers from hiring, stunting economic growth. However, Democrats are afraid of weakening social security and Republicans are more focused on cutting taxes for high wage earners.However, economic stimulus may be necessary to prevent a double-dip recession.
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This is a very simple and short term goal to increase economic growth for this holiday season. This short term pay roll tax cut would increase disposable income for the holiday season allowing for american spending money for the major shopping season. This could also change the dynamic of for GDP for the year because it could increase the amount of consumption within the economy. But there is a big risk to this plan if tax cuts where to occur it would raise government deficit and lower government saving rate which could lower the amount available funds raising intrest rates and lowering investment. So there is a good reasons why both political parties dont want to action on this plan for to lower pay roll tax.
ReplyDeleteYes this will increase the consumption because workers will get a bigger disposable income. This may help the short term economy. If stores accept higher holiday shopping, then they will probably hire more workers. Sometimes though, in bad times, people will save money instead of spend it. But, most likely consumption will increase with savings and investment decreasing.
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