Tea Party Plan for Democrats — Cut to the Front with Tax Cuts
At Saturday’s Tea Party conference in Dallas I’ll be outlining how Tea Party Democrats can run against Obama administration policies that are counter to both Tea Party and traditional Democratic values. It is the Washington elite that have moved away from the ideals of Jefferson and Jackson with policies that are, at best, regressive, elitist, and destructive to our quality of life. And who’s benefiting? Not the millions who voted Democratic who are losing their jobs and their homes. And with GDP now moving higher while unemployment rises, all that additional wealth is flowing up to the top. This Democratic President and Congress was not elected to enrich the bankers, insurance executives, drug companies, and union leaders at the expense of the rest of us, in a perversion of true core Democratic values. Unfortunately, the so-called economic experts have confused themselves and their political masters with contrived explanations for the way the economy works, and their limited vision has limited the range of policy choice. The result has been a monumental economic and social disaster caused by an obvious shortage of aggregate demand. The spending power needed to make mortgage payments, car payments, and do a bit of shopping- all of which would fix the economy and end the financial crisis- just isn’t there.
The answer is a full payroll tax holiday, where the US Treasury would make all FICA payments for both employees and employers that regressively remove 15% of every pay check from dollar one up to $106,800 of income. The take home pay of a husband and wife with a combined income of $100,000 per year would increase by over $650 a month, and quickly restore output and employment. Rather than funding the banks from the top down with an improbable trickle down theory that would have made Reagan blush, this tax cut restores the incomes necessary to support all economic activity from the bottom up. Instead of funding the financial sector with $trillions, the payroll tax holiday instead simply stops taking $trillions away from people working for a living.
Unfortunately, the Democratic elite has been not only against this kind of tax cut, even though it is a tax so regressive that no self respecting Democrat should tolerate for a single moment, because they think the Federal Government has to actually get revenue to be able to spend. However, that anachronistic gold standard reality has long been replace by our current, non convertible currency regime and floating exchange rate policy. Chairman Bernanke told Congressman Pelley exactly how the Federal Government spends today last May:
(PELLEY) Is that tax money that the Fed is spending?
(BERNANKE) It’s not tax money. The banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
Our govt has only one way to spend- they ‘mark up’ numbers in bank accounts. The funds don’t ‘come from’ anywhere any more than the 6 points for a touchdown posted on scoreboard at a football game ‘come from’ anywhere. Nor does govt. get anything when it taxes- the IRS just changes numbers down in our bank accounts.
The fact is, the US Government never has nor doesn’t have dollars. It’s the scorekeeper for the dollar. It just changes numbers in bank accounts.
So why tax? To regulate aggregate demand. Taxation is the thermostat. When the economy is too hot, raise taxes to cool it down. When it’s too cold, like it surely is today, a payroll tax holiday will warm it back up to operating temperature.
The Democratic elite have it wrong and their wrongheaded ways are doing serious damage to the US economy and the people struggling under their failed economic agenda. And their latest moves towards what they call ‘fiscal responsibility’ will only cut demand further and make things worse.
Tea Party Democrats can lead the way towards true fiscal responsibility, which means setting taxes at the right level needed to sustain output and employment. And today that means a full payroll tax holiday.
Well put. Putting specific examples with dollar amounts hits home.
You should put an ad in The Times or somewhere. A big one. An open letter. It took me a lot of luck and a certain amount of persistence to find you here.
Showing them they can run a deficit without worrying about running up debt should attract some attention.
Yes, absolutely…the AD campaign is a great idea. I have stated several times that it would be great if Warren undertook greater online / media outreach via slickening up this website, engaging in more youtube use, filming and publishing more user-friendly talks etc and of course, attempting to get seen in the major media via op eds and ads. The goldbugs and rothschild conspiracists (of which I was formerly one)can access tons of material, websites and even free hard-hitting movies like zeitgeist online to positevely reinforce their ideas. For us pragmatists, there is not much out there other than this website and a few blogs. Best of luck this weekend Warren. If only one person’s mind is changed, the trip is still worth it.
Great idea! The level of tenacity readers of this blog possess is exceptional.
That is, tenacity for truth, which is rare.
feel free to publish it as desired, thanks!
“The fact is, the US Government never has nor doesn’t have dollars. It’s the scorekeeper for the dollar. It just changes numbers in bank accounts.”
My banker friend at goldman sachs got his SCORE adjusted upwards by our government, while my SCORE continues to plummet. Now to further your analogy, what would the tampa bay bucs do to the scorekeepers if all of a sudden in the middle of a game they gave 50 points to the miami dolphins? Those bucs are great players, but catching up from a 50 point difference is impossible. Warren, while you continue to own a bank, I think it will be hard for you to get the populace to feel like you are on their team. You can’t criticize the bankers and own one yourself. That’s like geithner criticizing tax cheats and then getting caught doing it himself – oh goodness – maybe hypocrisy is the way to get into a position of power (snicker)
“So why tax? To regulate aggregate demand. Taxation is the thermostat. When the economy is too hot, raise taxes to cool it down. When it’s too cold, like it surely is today, a payroll tax holiday will warm it back up to operating temperature”
So instead of just worrying about prices, now I can play tons of tax whack a mole games – everytime a tax regulation pops up, I hire clever offshore accountants to whack that mole and get around it.
More short term greed abounds.
There has been some discussion here about potential “systemic” or transactional taxes that would be applied by regulatory entities in the banking system that would ideally be substituted for our current income based taxes that you are right can often be manipulated unfairly. Resp,
Matt, the regulators have been captured by the kleptocrats too:
In November, the FDIC circulated new guidelines for bank regulators to streamline and standardize the way banks are examined. One standout feature is that as long as a bank has evaluated the borrower and the asset behind a loan, if they are convinced the borrower can repay the loan, even if they go into a workout with the borrower, the bank does not have to reserve for the loan. The bank doesn’t have to take any hit against its capital, so if the collateral all of a sudden sinks to 50% of the loan balance, the bank still does not have to take any sort of write-down. That obviously allows banks to just sit on weak assets instead of liquidating them or trying to raise more capital.
That’s very significant. It means the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they’ll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that’s horribly destructive.
Just to be clear on this, let’s say I own an apartment building and I’ve been making my payments, but I’m having trouble and the value of the property has fallen by half. I go to the bank and say, “Look, I’ve got a problem,” and the bank says, “Okay, let’s work something out, and instead of you paying $10,000 a month, you pay us $5,000 a month and we’ll shake hands and smile.” Then, even though the property’s value has dropped, as long as we keep smiling and I’m still making payments, then the bank won’t have to reserve anything against the risk that I’ll give the building back and it will be worth a whole lot less than the mortgage.
MILLER: I think what you just described is accurate. And it’s exactly a Japanese-style solution. This is what Japan did in ’89 and ’90 because they didn’t want their banking system to implode, so they made it easier for their banks to sit on bad assets without owning up to the losses.
And what’s the result? Well, it leaves the status quo in place. The real problem with this is twofold. One is that it prolongs the problem – if a bank is allowed to sit on bad assets for three to five years, it’s not going to sell them.
Why is that bad? Well, the money tied up in the loans the bank is sitting on is idle. It is not being used for anything productive.
Can you please explain whether you get a 90% tax credit living in the U.S. Virgin Islands? Also, does the 13% ownership of your hedge fund firm get taxed at the regular rate and then rebated 90%? In other words, is your residency in the VI giving you an enormous tax benefit? Many people may support you and even contribute to your campaign but the general electorate won’t support a person who moved to the VI to avoid paying taxes…even if legal. Thoughts?
I must have been channeling Warren this AM. I was going to suggest it to him today. and I see he’s beat me to the punch.
After listening to the president’s address last evening, I was thinking that it was basically a conservative speech in the tradition of Ronald Reagan instead of FDR and that liberals and progressives would be attacking him aggressively for selling out. However, they do not realize, as most do not, that the government doesn’t spend taxpayer dollars and doesn’t compete for loanable funds when it borrows, nor does the debt need to be paid down by American taxpayers eventually.
Rather, the truth is that injecting net financial assets through deficit spending is the same as not removing that amount of NFA through taxation. Admittedly, there are social, political and economic difference in how the spending and taxation is targeted, but accounting-wise, it’s a wash. How the funds are best targeted is a political decision about which liberals and conservatives may differ, depending on constituencies, but the fact remains that these options are available though the government powers of currency issuance and management through spending, taxation, and borrowing, without needing to be financed. If this is understood, the political debated could take place based of fact instead of myth.
The goal should be to create an monetary system that is based on automatic stabilizers that adjust to the amount of NFA in relation to the balance between nominal aggregate demand and real output capacity/employment. One way to do this is through a VAT that would operate cyclically, increasing and decreasing in relation to this balance to regulate provision of NFA. Adoption of a job guarantee would provide a wage buffer for price stability. The $4$ offset for deficit spending and the limits on government borrowing would also be removed as unnecessary under the present regime. This would reduce the need for political intervention in the fiscal process. The Fed would then cease useless monetary operations based on erroneous theory, in the recognition that the natural interest rate is zero.
This is not difficult to understand in principle and operation. The problem is overcoming the established narrative based on gold standard thinking. What is needed is a simple explanation of how the monetary system operates under the present nonconvertible floating fx monetary regime as opposed to the no longer applicable convertible fixed rate regime. Warren has already taken a step in the direction with 7 Deadly Innocent Frauds, and Randy Wray provides a detailed explanation accessible to non-economists in Understanding Modern Money (1999). There are also a number of papers on this at The Levy Institute and the Center of Full Employment and Equity.
But so far, this is buried in the blogosphere and needs to be put out there. Warren is doing yeoman’s work, but this needs to be a concerted effort. The stakes are huge, and the alternatives horrible to contemplate in the coming years if this is not implemented.
“When the economy is too hot…”
What does it mean that the economy is too hot?
The economy is a system satisfying people’s wants and needs. If it’s too hot, does it mean that people get too many of their wants/needs satisfied?
If so, why is it a problem?
Curious, when nominal aggregate demand exceeds real output capacity, price level is bid up and inflation is the result. Conversely, when nominal aggregate demand falls short of aggregate supply at real output capacity, then excess inventory builds up, recession sets in and unemployment rises. It is the responsibility of the government as currency issuer and manager to use monetary policy (including fiscal policy) in order to balance NAD and real output capacity.
“…inflation is the result.”
if I am willing to pay $2 for a chocolate bar today, instead of $1 that I paid yesterday, why is it a problem?
Curious, inflation introduces a number of imbalances into the economy as a whole. In the first place, it affects all existing contracts and obligations that are not indexed to inflation, disadvantaging creditors and people living on fixed incomes, for example. It also disadvantages workers when prices rise faster than wages increase. Price instability also introduces price uncertainty, and this has ramifications for panning, contracting and making other future commitments. Secondly, inflation devalues the currency, so that there is a strong incentive not to hold money but rather to spend it, further driving inflation and creating a disincentive to save.
1. Why is it good to protect creditors and people on fixed income at the expense of debtors and people on variable income?
2. Prices rise faster than wages precisely because workers voluntarily bid up those prices. That’s what inflation is, isn’t it?
3. Why is it good to create incentive to hold/save money?
lol very nice. I don’t understand why we need to create additional incentives to hold money. right now in particular.
Inflation restulting from higher wages is not bad for anyone but people who hold lots of money. Inflation restulting from commodity prices going up is bad for everyone but holders of commodities.
Just because prices are going up doesn’t mean that things are necessarily bad.
A major problem with the monetarist view is that all inflation/deflation is created equal. It isn’t.
Deflation resulting from better more efficient modes of production is not bad for an economy. Deflation resulting from millions of people not working is horrible for an economy.
This is not rocket science.
Scott Brown gets it half right…..
Brown tells AP he’ll sometimes side with Democrats
“Yet the senator-elect said he was concerned some spending controls and other changes were not projected to take effect until 2011. He called for an immediate across-the-board tax cut and a reduction in payroll taxes.”
Find a better way to say, “regulate aggregate demand.” People won’t understand that. You have to find a simple way to express that.
Thanks for the reminder, Mike. Warren is more careful of this than I am sometimes. “Spending power” is probably more understandable than “nominal aggregate demand.” Any other ideas out there?
Yeah, when I read Warrens stuff, I realize why I get paid so much.
I can write stuff that speaks to the smart but non-expert economic crowd.
Let me take a crack at it and post it.
I think a point worth making about federal debt is one that Wray made recently; There’s no need to increase the debt limit. Treasury could simply overdraft its Fed account, paying interest to the Fed instead of to bond holders. Since the Fed forwards its net profits to Treasury, the government would simply be borrowing from itself. I’m sure that’s the most obvious thing in the world to you, but to the general audience, its kind of mind blowing.
As for your excellent tax holiday idea, what’s interesting is that since Social Security is off budget, a payroll tax holiday wouldn’t increase the budget deficit. To take it further, keep moving parts of the government off budget (after Social Security, Medicare, then infrastructure, then a guaranteed jobs program, etc) and the deficit hawks won’t have anything to complain about. :o)
“… and the deficit hawks won’t have anything to complain about.”
Would that it were that simple. The deficit hawks will continue to complain until enough people understand their scare-mongering to be ridiculous in light of the present monetary system.
Why? Douglass C. North (Nobel, ’93) wrote an interesting paper, Economics and Cognitive Science, in which he explores how conceptual memes ground social conventions, which in turn ground economic institutions. The norms of the prevailing universe of discourse rule in the principles applying to the obsolete gold standard paradigm based on convertible fixed rate currency as the norms of the established narrative. That narrative must be changed before much else can happen. Functional finance is marginalized in the current economic and political universe of discourse.
This is gong to be an incremental battle until a critical mass develops that is capable of challenging the current paradigm that rules popular, academic, and political discourse.
Not to sound cynical, but this stuff will never be embraced by the general populace for the simple reason that we do not have the resources for marketing these ideas and everyone knows it all comes down to marketing. We are up against the likes of the Pete Peterson, the Heritage Foundation, Cato Institute and many other well funded organizations and individuals who have devoted many millions in keeping their deficit/debt message alive. I was offered a TV show last year, which would have been an excellent chance to disseminate these concepts but it never got off the ground for lack of sponsors. I even approached some people closely involved in our efforts but they balked at the idea. This is not to call anyone out, however, reality is reality. Talk is cheap. We can go on day and night until we turn blue in the face with these little blogs and postings here and there, however, without resources don’t expect anything that we say or espouse to become mainstream anytime soon. Columbus had a great idea, but it wasn’t until he found a wealthy sponsor in Queen Isabella of Spain that he was able to prove his theory, which eventually changed the world.
Mike, I agree and…. One of three things is going to happen. Either the prevailing universe of discourse will continue until the system implodes bringing about the need for radical change and the search for new solutions, or an angel or two will come along, or these ideas will go viral. The third possibility is not far-fetched, although it is going to take some slogging in addition to blogging. And let’s hope there are some angels out there with deep pockets.
I salute Warren for putting his butt on the line and taking the message to the people. I also think that it is possible that an angel or two may emerge, and this could happen from several quarters, financial, academic, and political. Therefore, this needs to be brought to the attention of people that are in a position to do something with it. So let’s keep on truckin’, not only for ourselves, but also for the coming generations who will have to live with this mess.
Talk it up and talk to every influential person you can reach. Again, as soon as there is a critical mass, things will change. There are influential academic who know about this but aren’t willing to risk their professional investment by coming out first in a hostile climate. After all, this is revolutionary, and it would drastically change the status quo. Of course, there is going to be a lot of resistance. I’m sure that “they” are taking names.
I agree with this as well, there needs to be some powerful voices that are brought on to this. Reminds me of Ralph Nader talking about his latest book “only the super rich can save us”…a fiction book where billionaires are enlisted to provide leadership on big ideas for society. Maybe we need another super rich guy named Warren who also likes to write economics pieces (that DO get published in the NYTimes) to be brought on board…just throwing that out there.
I was kidding about making the deficit hawks happy. What will move the ball forward for MMT will be when one side or the other of the partisan divide sees it as a way of advancing their goals. Because MMT could be used to justify both lower taxes and more spending, I could see either conservatives or liberals taking it up.
For example, the deficit hawks want to raise taxes and that is a problem with the Club of Growth conservatives who oppose tax increases at any time or for any purpose. They’d have no problem adopting arguments that could be used against proposal to raise taxes across the board. If Dick “deficits don’t matter” Cheney ends up running for president in 2012, I wouldn’t be surprised if he was open to the idea.
On the other side, one of the long-held goals of liberals is a single-payer health care system. They face two political obstacles, one, their agenda necessarily blows up the health insurance industry (not much anyone can do to help them on that one), the second is that even if, as seems likely from Canada’s and Taiwan’s experience, a single payer system lowers national healthcare expenditures, moving funding from premiums to general revenue is expensive. If their alternative is doubling the FICA rates, then I can see single payer fans quickly seeing the political advantages of supporting MMT. Ellen Brown sort of took this tack in a recent article.
Great post, Warren! we need more of these and also completely (and unfortunately) agree with Jason and Mike N. : without a real investment in marketing it would take a looong time to educate the public about these ideas.
As Jason proposed, investing into social media (mostly educational videos) will likely get the best ROI. I standby to help anytime.
Good luck on your trip!
Warren many years ago on the old board you and I had a discussion on bringing back the PAYGO rules, and at the time you seemed to think it could be OK. Your speech on saturday will be interesting given what just happened today:
Senate passes pay-go rule on party-line vote
By Michael O’Brien – 01/28/10 11:58 AM ET
The Senate voted along party lines on Thursday to adopt statutory pay-go rules in a party-lines vote.
60 Democratic senators voted to adopt the pay-go measure (short for “pay-as-you-go”), which would require that new spending measures be offset in the budget by other funds, typically raised through tax increases or cuts to spending.
Republicans have said that by installing the rule, pay-go would become an excuse for tax hikes, since spending cuts are frequently unpopular.
All Democrats voted for the measure, and all 40 Republicans voted against it. The House adopted such a rule in a 265-166 vote last July.
Warren you say this democratic congress was NOT ELECTED to ENRICH the bankers, and their monetary and economic “confusion” is hurthing people, how much more evidence will you require before you admit they are doing this by “design” and are well aware of thier actions? – remember this:
ROBERT KUTTNER: …. the Democrats are supposed to be the party of the average person. You have the so-called New Democrats who are really the party of Wall Street. And then you have the Blue Dogs who are fiscal conservatives. And if you look at what happened in Barney Frank’s committee to the financial reform bill, he’s a pretty good liberal, he ended up looking like a complete stooge for industry because in order to get a bill out of his own committee, he had to appease the 15 New Democrats, so-called, who were put on that committee mostly by Rahm Emanuel when he was the-
MATT TAIBBI: Sort of as a means to raise money.
ROBERT KUTTNER: As a means to raise money. So Melissa Bean, who’s a two-term Democratic Congressman ends up being the power broker because she controls 15 votes on Barney Frank’s committee of what she’s going to allow out of committee and what she isn’t.
BILL MOYERS: Why does she control 15 votes?
ROBERT KUTTNER: Because there are 15 New Dems, and this is the centrist caucus that particularly specializes in taking money from the financial industry.
BILL MOYERS: You call them centrist, don’t you mean corporate Democrats? I mean-
ROBERT KUTTNER: Corporate, yes, sorry. That’s too kind. They’re corporate Democrats who were put on that committee because Rahm Emanuel felt that there’s no better place than the House Financial Services Committee if you want to shake down Wall Street, to put it bluntly.
MATT TAIBBI: There’s a great example of Melissa Bean’s power was when the banks wanted to pass an amendment into the bill that would have prevented the states from making their own tougher financial regulatory rules. And Bean put through this amendment that basically said that the federal government would have purview over all these laws. And it passed. And this was the kind of thing that the banks wanted. They just go to Melissa Bean, she puts that amendment in there and it and it gets through.
MATT TAIBBI: Most people that I’ve talked to have taken one of two positions on this. One is that Obama was naïve, that he doesn’t know a whole about the financial services industry, and he felt the need to rely upon people who’d been there before, people who’ve had these jobs before, and you know, who have this expertise. And there’s another school of thought that look, he took more money from Wall Street than any other presidential candidate in history. Goldman Sachs was his number one private campaign contributor. And if you just look at the evidence, it’s just really business as usual.
This is what the Democratic Party has done since the mid-’80s. They’ve relied heavily on the financial services industry to fund their campaigns. And it’s the quid pro quo. They gave a lot of money to help these guys run, and in return, they get the big jobs, you know, in the White House.
studies show rates of inflation at least up to 40% a year show no evidence of hurting the real economy.
the problem with inflation is people/voters don’t like it. they think it’s unfair, it’s the gov robbing people of their savings, etc etc.
Powerful constituencies that dislike inflation:
1. Bondholders. Inflation results in higher interest rates and falling prices on existing bonds.
2. Creditors. Inflation means that debts are repaid in cheaper dollars.
3. Seniors. People living on fixed incomes loose purchasing power.
4. Workers. Wages do not keep up with inflation. Savings are eroded.
5. Business people. Material and labor costs rise faster than they can be passed on to consumers, reducing profits.
6. Politicians. Politicians don’t like inflation because they get blamed for it.
Monetarism and NAIRU(non-accelerating inflation rate of unemployment) are about using unemployment as a buffer against inflation based on the Philips curve. Keynesianism holds that fiscal policy is superior. However, most New Keynesians like Krugman accept monetarism along with fiscal policy. MMT is Post Keynesian.It rejects the assumptions of monetarism, namely that quantity of money is determinative, the loanable funds doctrine holding that government borrowing crowds out investment , and the operational principle that interest rates to control money supply.
I think these interest groups are the reason inflation is such a big deal.
also, game theory 101 tells us when labor needs to work to eat and business only needs to hire if it can make x return on investment, it’s not a fair game.
even when the unemployment pool gets down to one guy he needs a job just as much as when there were 10 million unemployed, and from that point of view- work or starve- his bargaining power is the same.
People (labor or otherwise) don’t need a job to eat, they need income.
Return on investment is the investor’s income, just like wage is the laborer’s income. Why is it not a fair game?
they need a job to get income to eat.
the investor/corporation can leave his $ in the bank or not borrow if he doesn’t like the risk/reward of hiring the next person and not starve. lots of companies today not hiring because of flat demand, but still not starving, but instead making big bucks.
Hi I’m Warren Mosler.
We have a problem in the United States of America. The middle class isn’t making enough money. And because they aren’t making enough money, our economy is fragile. It is so fragile that a few banks making bad trades brought America to its knees.
Now, according to the bankers and elites, how much the middle class makes isn’t important. All that matters is the total amount of money made in the economy. That the bankers and elites happen to get a king’s portion of this is just a happy accident. Or they say it is because they say they are better than the middle class: smarter, faster, more deserving.
I say: Bunk. You’ve heard of “trickle-down economics”? I say we need “trickle-up economics”. The elites in this country have shunned the ideals of Thomas Jefferson and Andrew Jackson – the ideals of shared prosperity and opportunity. They’ve moved far past the idea that greed is good – to a society where greed is the only good.
And they’ve forced us to live in this society.
Now, this problem didn’t happen entirely by accident. Not entirely.
Part of the story we are in the mess we’re in is that the elites in this country have deliberately impoverished the middle class of America. They’ve done this by telling us a number of clearly false things. They’ve told us hurtful speculation is really investment, that wealth can only be accessed by borrowing money from a bank, by deliberately confusing the banking economy with the working economy. They’ve made us poorer deliberately – because they truly believe that a poorer middle class was good for America!
But that isn’t the whole story. Part of the story is that our economic experts aren’t real experts at all. They’ve forgotten what the first economists considered to be the most important idea of economics: Broadly shared prosperity creates stronger economic growth.
We ran into this problem because we rely on people who “say” they are experts to actually “be” experts. When you call the plumber, you just want your plumbing to work, and you expect him to know how plumbing really works.
You aren’t calling a plumber so they can give you a theory about why these pipes should result in the optimum flow rate in some pretend world where… you get the picture. You want practical results.
But we don’t get that practical, no-nonsense thinking from our economic experts. They base their thinking on some ideal world where everyone acts like a computer, where a government is just like a person, where things appear out of nowhere because somebody wants them, where the middle class is dispensable.
And now, with GDP growing while unemployment soars, it’s even worse. We’re entered a true reverse robin-hood economy. An economy where the wealth flows to the top. Where we tax the poor and hand billions to the bankers.
A top heavy structure is not healthy for the growth of any economy – ask all the Kings of the last thousand years. They were rich too, but their countries didn’t have any economic growth.
We’ve had very rich people for a long time – since the time of Christ at least. But the middle class is a very recent – and fragile – creation. And only since the middle class was created has there been any real economic growth.
This Democratic President and congress wasn’t elected to enrich bankers and insurance executives, they were not elected to provide jobs for union leaders. They were not elected to hand out billions on trades gone bad.
They were elected to get America back to work – and get the middle class back to a position of strength.
Part of the problem I talked about earlier was that our economic experts aren’t really experts, but we listen to them anyway. They’ve taken away our choices – our economic freedom, if you will – with their wrong-headed thinking. And we’ve been following them for the last 40 years.
The result has been a monumental economic and social disaster. We have an obvious shortage of spending power. The spending power needed to make mortgage payments, car payments, and do a bit of shopping- it just isn’t there.
In the 70’s, when the Steel workers were being destroyed by this new economic model, we should have listened to them. In the 80’s, when the farmers were the next people hit by this hostile takeover, we should have listened to them. When we realized in the early 90’s that people hadn’t had a pay raise for 15 years – it’s over 30 years now – we should have sat up and took notice. We didn’t, and here we are facing another Great Depression.
So, how do we fix it? We fix it with a full payroll tax holiday. A full payroll tax holiday would give nearly every working American a 7% pay raise tomorrow. A payroll tax holiday would give many small businesses higher profits. A payroll tax holiday would give a huge boost to demand – and get lots of Americans back to work.
What I specifically propose is the US Treasury would make all FICA payments for both employees and employers that regressively remove 15% of every pay check from dollar one up to $106,800 of income.
15% is a lot of money. In fact, for most people, payroll taxes are by far the highest taxes they pay.
Rather than funding the banks from the top down with an improbable trickle-down theory that would have made Reagan blush, this tax cut restores the incomes necessary to support all economic activity from the bottom up.
This is “Trickle-up economics”. It is that simple. Just stop taking away trillions away from people that work and giving it to bankers – and our economy will right itself.
Unfortunately, the top Democrats have been against this kind of tax cut. Payroll taxes are so regressive, I don’t know how any self respecting Democrat can tolerate them for a single moment. But I can’t blame them entirely – they’ve been listening to the same economic experts that got us into this mess.
People don’t realize were still using 100 year old ideas on how money works – even though we have a fully modern money system. These experts are using gold standard theory to run the modern world – and we can see the unpleasant results.
The real crime is – some of them get it, some of them understand, and they still refuse to change policy. Here is Chairman Bernanke telling Congressman Pelley exactly how the Federal Government spends in May of 2009:
(PELLEY) Is that tax money that the Fed is spending?
(BERNANKE) It’s not tax money. The banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
Our government has only one way to spend money – they” mark up” numbers in bank accounts. Our main central banker gets it, but still doesn’t do anything with this information. Maybe he likes seeing millions out of work- I don’t know.
The spending doesn’t ‘come from’ anywhere. When you are watching a football game, where do the points come from? Where do they get the 6 points they put on the scoreboard? Do the scorekeepers mug some kids playing football in the yard, and take the points from them, so the pros can have 6 more points? No. These points don’t come from anywhere. There are all the points any team needs.
And on the other side, the government does not get anything when it taxes. The IRS just changes numbers down in our bank accounts. Just the opposite of what happens when the government spends.
So why tax at all? To regulate spending power is one reason. Taxation is the thermostat. When the economy is too hot, raise taxes to cool it down. When it’s too cold, a payroll tax holiday will warm it back up to operating temperature.
Is it too warm or too cold right now? I’d say, “too cold”. Let’s turn up the heat.
The Democratic elite have it wrong. Their wrongheaded ways are doing serious damage to the US economy. The people are struggling under their failed economic agenda. And their latest moves towards what they call ‘fiscal responsibility’ will only cut spending power further and make things even worse.
Tea Party Democrats can lead the way towards true fiscal responsibility. This means setting taxes at the right level needed to sustain buying power, output and employment. And today that means a full payroll tax holiday.