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The Spectacle Blog
Speaking in his town hall meeting earlier in Elkhart, Indiana, President Obama said, “Tax cuts targeted to working families are the most effective means of stimulus that we can provide to the economy.”
That was a shift for Obama. Just a few weeks ago, when he was under criticism from liberal Democrats for not having enough spending in the package, the argument that he made was that spending was the best way to stimulate the economy, and the only reason there wasn’t more spending in the bill was that there weren’t enough worthy projects that were ready to go. Tax relief was described as the next best approach once all of the viable spending options were exhausted.
Yet, if Obama has now come around to the idea that working-class tax cuts are the “most effective” means of stimulus, the best way to accomplish that would be to use the stimulus package to actually reduce payroll tax rates, a policy that I have advocated before.
One of the primary liberal arguments against a payroll tax cut is that individuals would use the extra income to pay off debt and build up savings rather than spend it, thus it wouldn’t be as stimulative as direct government spending. But Obama, perhaps inadvertently, rejected that argument today.
“When you give a tax break to working families who are struggling, they will spend it on a new coat for the kids, or making sure that they get that car repaired that they use to get to work,” he said.
President Obama’s signature tax proposal, a form of which made it into the stimulus package, has been touted as a payroll tax cut, but it’s something quite different. Rather than actually cut payroll tax rates, the government will write checks of up to $500 for individuals and $1,000 for families to theoretically refund a portion of payroll tax contributions.
There are several disadvantages to this approach: cutting tax rates is more effective than a lump sum payment, a rate cut could be implemented more immediately than the time it would take for the federal government to cut checks to taxpayers, and also, if a payroll tax rate cut were the centerpiece of the stimulus package, it could be much more substantial than Obama’s current tax refund.
View all comments (68) | Leave a comment
More Blog Posts by Philip Klein
http://spectator.org/blog/2009/02/09/obama-says-tax-cuts-most-effec
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J David| 2.9.09 @ 5:06PM
Cut corporate and small business tax rates, and capital gains and the market would recover instantly. The Dow would be at 9000 tomorrow, and 10,000 next week. Jobs quickly follow vigorous investment, money in the pockets of the newly employed go straight to all of the needs deferred for lack of money. Capital gains cuts would also stimulate the housing sales/mortgage problem, asset values would rise, and loans would be paid back, and etc...
Real American| 2.9.09 @ 5:23PM
Obama's argument just demonstrates what a phony he is. Since his “targeted tax cuts" really are rebate checks, they aren't tax cuts, are they? He's is simply trying to use the language of "tax cuts" to sell his monstrosity. Rebates are just spending items. If he were a real tax cutter, we'd be talking about rate cuts – Corporate, income, cap gains – you know - government actions that will actually stimulate economic growth.
Unfortunately, he can’t and won’t do that because (1) He doesn’t believe it, (2) this bill isn't about stimulating the economy at all. It's about stimulating the government employees unions who fear the loss of their jobs by state governments; (3) liberals all over the country would go apeshit.
J David| 2.9.09 @ 7:19PM
...And it's about paying the parasites who pay little or no taxes anyway to vote commie.
Jeremiah| 2.9.09 @ 9:23PM
J David --
Referring to people as "parasites" is a lovely fascist touch.
But you should learn the proper decorum of political argument.
Greg conlan| 2.9.09 @ 10:36PM
The decorum is not the argument it is simply that anyone would buy into President Obama's words.
He will say anything to get by and I cannot believe anyone still believes in anything he says.
Sooner_Red| 2.9.09 @ 10:56PM
There are three groups of people when it comes to Obama:
1 - His worshipers... er supporters, who don't CARE what he says...
2 - His detractors... those of us who hear what he says, but can't believe no one else gets it...
3 - The vast majority... who don't have time to listen, or don't know enough about what is going on to realize that he's full of it, or simply turn off the television when ANY politician comes on, assuming that they all lie.
ruth| 2.10.09 @ 3:04AM
And 4-the minders like Jeremiah and Interloper; the socialist true believers who are overjoyed that their country is going socialist/marxist and are actively shepherding it among the sheeple (us).
George| 2.10.09 @ 10:45AM
I can't believe that there are still people believing that tax cuts are the solution to our economic ills. Have these people been in a coma for the last thirty years?
jim| 2.10.09 @ 1:54PM
Please someone point out where the following conclusion based on these assumptions is wrong.
Conclusion: Tax cuts will raise more revenues than raising taxes.
I used the following
1) Small business taxable (after all deductions) income is $335,000
2) http://www.smbiz.com/sbrl001.html#ci is the source of the corporate tax tables
3) Tax rate is 39% on $335,000 taxable income
4) IRS taxes are $130,650
5) Net income after taxes $204,350
Assuming the following:
1) Small business taxable (after all deductions) income is $335,000
2) Tax rate is cut by 50% to 19.5%
3) IRS share $65,325
4) Company reinvests savings in business with a return on investment of 50% or $97,988
5) Gross taxable income $367,663
6) IRS share $71,694 or increase of $6,369.
7) Net income after taxes $295,968 to be spent on yachts, houses etc...
8) Multiplier affect: for every dollar spent on yachts,etc $7 are spent by workers,etc. or $2.1 million.
9) According to this source:http://www.census.gov/epcd/www/smallbus.html
In 2002 there were 2,387,790 firms at multiplier affect of $2.0 million per firm or total affect on the economy of :
$4,946,950,520,549 ($4.9 trillion).
All by lowering tax rates... (trickle down theory.. rising tide raises all boats..) CAPITALISM!
BUT ASSUME instead of tax cut a tax
increase of 50%
1) Income $335,000
2) Tax rate is 58.5%
3) IRS share $195,975
4) Net Income after taxes $139,025
While IRS gets more, the small business
now has lost $156,943 that will not be
spent on yachts, houses.
Jim| 2.10.09 @ 2:05PM
In addition to the stimulus from corporate taxes think of the $1 trillion off shore that would be coming back plus if the payroll,SS and Medicare taxes were cut by 1/2 here is what the average $600/week worker would gain as well as what the economic jolt would be.
If Congress cut payroll, Social Security and Medicare taxes by half on the average $608 weekly wage earner of which there are 135 million these same workers would have $200 a month more to live on or over $376 billion pumped back into the economy in a year just from them alone!
Businesses would also have their payroll taxes reduced thus adding another $376 billion.
Nearly $4 trillion in stimulated economy all by cutting taxes by 50%
Frustrated Dave| 2.10.09 @ 7:09PM
an imediate 3-5% payroll tax cut for both Employers and Employees would go a LONG way to ease the pressures of debt and cost of living for the Taxpayer as well as relieve the pressure on Employers to cut back on hours, pay, and personnel.
ps... Even if people use it to pay off debt or save...Hello? Doesn't that help the bottom line of the American People the ultimate underwriters of the stimulus package? We SHOULD be paying down our personal debt! We SHOULD have savings!
sdfsdf| 5.10.10 @ 5:14AM
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