Larry Mishel Speaks…I Must Listen

June 5th, 2011 at 2:41 pm

Larry Mishel, the President of the Economic Policy Institute, is an old friend, mentor, and co-author (with illustrious others) of NINE editions of the book State of Working America.  You write nine books with someone, you either love each other or kill each other.  We both remain alive, so you do the math.

He comments:

“Jared, my man, if there’s going to be a payroll tax holiday, let’s not do it on the employer side at all. It just gives them cash and they have plenty and are not spending it. Cash for workers is much better, so spend the money on them. And, you should always, imho, mention that the funds will be reimbursed to Soc Sec. or people will be concerned you’re weakening it.  The danger is that the conservatives like this policy and hope for a permanent cutback in the payroll tax.”

Excellent point re reimbursement.  We had that fight around the much smaller 2% payroll tax holiday earlier this year, and it was essential back then to stress this point.  Even more so now what with recent R attacks on social insurance (e.g., Medicare privatization).

My instinct is the same as Larry’s re the bigger-bang-for-the-buck if you do the whole thing on the workers’ side of the paycheck.  Again, that’s how the current payroll tax cut is structured.

But CBO finds otherwise (see table 1 here), and it would be good to know why.  If only I knew the president of a smart, progressive think tank that consistently provides the correct answers to labor market questions like these…

 

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7 comments in reply to "Larry Mishel Speaks…I Must Listen"

  1. denim says:

    The man is a genius. Why have you been hiding him?

    Yes, the companies are sitting on the cash until a net employee reduction M&A pops up. Then it’s go for the gold.

    I like giving the tax break to the employee, but would like a little preference given to when he spends it in a way that is also usefull to the local economy…education, training, self-improvement rather than fancy imported gadgets. I like imports to but we can do that after the recovery is completed.


  2. CDW says:

    Raise you hand if you believe the payroll tax will be reimbursed. If you believe, then please let us all know who will pay when you have the likes of Ron, Rand, and Paul Ryan in charge of the purse strings.


  3. billmaguire says:

    Jared,

    Although I agree that the employee side would be most beneficial, I don’t think you realize how bad cash flow is for small companies at the present time. Major corporations have tons of cash, but small business has almost no access to credit,and the holiday would relieve a huge burden on the small companies.


  4. Sid F says:

    If you read Conservative tracts on the level of taxation that people face, they ascribe the employer portion of payroll taxes to the employee. That is they count the 7.65% twice, apparently under the assumption, totally unproven or supported, that employers have simply reduced compensation by the amount of payroll tax that employers pay.

    Under this logic, eliminating just the employer portion of the payroll tax would increase employee compensation by 7.65% on everyone subject to the full amount as employers pass along the savings 100% on to their employees.

    While we know this does not happen in the real world (has anyone ever had their compensation go up after they have reached the maximum payroll tax for SS and the company no longer has the matching payment?) in the alternate universe of Conservative economics where data and analysis and conclusions are driven by the ideology rather than the facts, this is quite real.


  5. Jim Pharo says:

    A payroll tax holiday is a pretty good example showing that our leaders are simple nuts.

    We are experiencing catastrophic unemployment. We are experiencing the dismantling of basic support services, like food, shelter and medicine. Our schools are failing epically.

    Whatever the benefits may be of putting $23.58 cents in everyone’s pocket may be, the truth is that these resources are needed far more urgently to address the real, pressing and urgent matters I mentioned.

    This is rather like free band-aids to the soldiers on the beaches of Normandy. It’s this kind of narrow-minded thinking that led us here, and that sadly more or less assures our doom as a functioning modern society.


  6. John Irons says:

    To answer your question re: CBO. I suspect sticky wages will mean payroll reduction on employer side will lower marginal labor costs in their model in the short run. If these are passed on to prices, you will likely get more sales/output than a straight-up boost to income via the employee side cut. But the additional impact should be small (as the CBO table suggests).


  7. Bob Stern says:

    The CBO reasoning is that employer’s predominant response to their lower payroll tax will be a lowering of the prices of their goods. This will encourage purchasing and demand leading to new jobs. So in effect it would act similar to a cut in payroll tax on the employee side.

    How they conclude that employers will do this is a mystery since in their same report they say that an employer could also pass on the savings to employees in the form of higher wages(not likely), retain it as profit(more likely), or hire slightly more labor(not likely). Since many companies are not cash poor they already have the luxury of lowering prices if they wanted to-but have not. So its hard to see how the extra cash form the payroll cut savings changes this equation.

    Better to legalize whatever CBO staff are smoking and put a tax on it.


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