Raise taxes please!
In 2011, payroll taxes were 13% of wages instead of the usual 15%. Obama wants to reduce it to 12% for 2012. I think this is stupid, short-term thinking. I'd be happy to see payroll taxes stopped entirely if the system is being wound down. We could pay existing retirees from general taxes; pay people near retirement some amount too; phase it out somehow or the other... but it makes no sense to keep the whole system in place and merely take in less taxes.
Cut spending stupid: If we're not cutting spending, reducing taxes simply means more government debt. Essentially what the government is doing to the average wage-earner is saying: "Keep an extra $1,000 every year, and we'll take on an extra $1,000 of debt in your name." I do not want that. First cut the spending! If the government comes up with a credible plan to cut spending over the long term, I wouldn't even mind a short-term tax hike. I will not cheer lower taxes today when it means higher taxes tomorrow. More importantly, I will not cheer lower taxes that create a false illusion today, and creates false incentives to spend.
Keynesian-ism: Keynesians want the middle class to keep an extra $1000 a year, hoping it will boost consumption. Actually, it might well do so in the short-term. A few strict monetarist may argue that deficit spending simply brings higher-prices, without stimulating real spending; but, this is wrong. The Austrians do realize that spending does not impact all transactions at once. Its uneven nature can create sector-specific booms without a pull-back in other sectors. It can take a while -- say, a year -- for all the flow-through to reveal that the boom was temporary, that it caused mal-investments and delayed necessary adjustments. So, stimulus can stimulate real "mal-spending" and "mal-production".
The GOP's tax-cut mantra: The GOP resisted the extension of the payroll tax cut before finally giving in. Yet, the GOP was for the "Bush income tax cuts", without insisting that they "be paid for". The Democrats rightly accuse the GOP of being inconsistent, and accuse them of being for tax-cuts for the rich while resisting tax-cuts for the middle class. It really serves the GOP right, because they have adopted a mantra of tax-cuts being a solution to our problems, while they really ought to focus on spending cuts.
Payroll tax-cut implies a future tax on the rich: I suppose the American voter is not ready for serious spending cuts just yet. Instead, he'd rather "extend and pretend". The truth is that the burden will not just be passed on to his children. Like always, when push comes to shove, a disproportionate burden will fall on those who are rich. Every time we vote to cut taxes and increase our debt, we are really planning to raise taxes on those who are wealthier than us... a decade or two hence.
Cut spending stupid: If we're not cutting spending, reducing taxes simply means more government debt. Essentially what the government is doing to the average wage-earner is saying: "Keep an extra $1,000 every year, and we'll take on an extra $1,000 of debt in your name." I do not want that. First cut the spending! If the government comes up with a credible plan to cut spending over the long term, I wouldn't even mind a short-term tax hike. I will not cheer lower taxes today when it means higher taxes tomorrow. More importantly, I will not cheer lower taxes that create a false illusion today, and creates false incentives to spend.
Keynesian-ism: Keynesians want the middle class to keep an extra $1000 a year, hoping it will boost consumption. Actually, it might well do so in the short-term. A few strict monetarist may argue that deficit spending simply brings higher-prices, without stimulating real spending; but, this is wrong. The Austrians do realize that spending does not impact all transactions at once. Its uneven nature can create sector-specific booms without a pull-back in other sectors. It can take a while -- say, a year -- for all the flow-through to reveal that the boom was temporary, that it caused mal-investments and delayed necessary adjustments. So, stimulus can stimulate real "mal-spending" and "mal-production".
Fiscal spending can put cash in people's pockets. If people have more money, some will spend it; businesses may not fire as many employees. To the extent that this does work, it does so by giving people a false sense of security. In essence, the effect is similar to excessive credit-creation. The government is taking on the loan here, and people are left with more money in hand. Stimulus can make recessions less deep, but only by prolonging them, by causing more long-term fiscal problems, and by redistributing wealth. Instead of allowing readjustment, stimulus underwrites the status quo, slowing the processes that allow for readjustment.
The GOP's tax-cut mantra: The GOP resisted the extension of the payroll tax cut before finally giving in. Yet, the GOP was for the "Bush income tax cuts", without insisting that they "be paid for". The Democrats rightly accuse the GOP of being inconsistent, and accuse them of being for tax-cuts for the rich while resisting tax-cuts for the middle class. It really serves the GOP right, because they have adopted a mantra of tax-cuts being a solution to our problems, while they really ought to focus on spending cuts.
Payroll tax-cut implies a future tax on the rich: I suppose the American voter is not ready for serious spending cuts just yet. Instead, he'd rather "extend and pretend". The truth is that the burden will not just be passed on to his children. Like always, when push comes to shove, a disproportionate burden will fall on those who are rich. Every time we vote to cut taxes and increase our debt, we are really planning to raise taxes on those who are wealthier than us... a decade or two hence.
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