Bob Murphy has taken the time and trouble to explain and graph my critique of Obama’s payroll tax cut. Nice work, Bob!
Dec 16 2010
Tyler Cowen writes, In part the financial sector does the equivalent of writing "naked puts," namely taking risks which usually yield extra income but occasionally blow up and bring large losses, part of which are socialized. He is trying to respond to Kevin Drum, but I think he overlooks one of Drum's issues. But ...
Dec 16 2010
I think I can safely say that I have never met a person in an ordinary walk of life who complained about society's distribution of income. I've never heard a normal person say the world would be better off per se if Bill Gates and Warren Buffett earned less money. No waitress. No taxi driver. No deli operator. No one i...
Dec 16 2010
Bob Murphy has taken the time and trouble to explain and graph my critique of Obama's payroll tax cut. Nice work, Bob!
READER COMMENTS
Lord
Dec 16 2010 at 12:22pm
This shows not the deficiencies of the tax cut, but the deficiencies of the model used though. In depressions, one does well to do this analysis and then do the exact opposite of what it suggests. This is because what is desired is not goods, but money, so lower prices mean less spending as more can be saved. Conventional thinking simply doesn’t work in depressions.
Richard A.
Dec 16 2010 at 1:47pm
M x V = P x Q
Cutting payroll taxes on the employer side will lower the cost of labor and thus lower P causing Q to be higher. It will also tend to increase the deficit causing an incremental increase in V.
Cutting payroll taxes on the employee side will do nothing to lower P but will also tend to increase the deficit causing an incremental increase in V.
IOW, you get more bang for the buck by cutting payroll taxes on the employer side.
Richard S
Dec 16 2010 at 2:27pm
I think Bryan’s critique rests on the assumption that it is the pre-tax wage that is sticky rather than the post-tax wage. If the post-tax wage is the sticky one, then employment will rise even if the tax break goes to the employees. Do we know that it is in fact the pre-tax wage that creates the floor?
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