Your analysis is good but this proposed solution is, IMO, poor. A payroll tax holiday is nothing more than a regressive stimulus which helps the economy where it really needs it the least. The people who really want to spend and need to spend are those who cannot right now because they are dumping almost everything they have saved or earned into holding back the dam of debt. A payroll tax holiday will exponentially give most of the stimulus money towards the wealthy, who do not have the same pressing desire to consume as those who are only spending money on food, taxes, and bills. If you want those people to start consuming again you're going to have to unclog the gutter, not pour more water down the drain. Giving someone who earns $500K a $20,000 rebate and the person unemployed $0 is not going to fix the problem. Any country attempting trickle down economics in a globalized economy will be prone to failure since it is not a closed system.longhornbaseball wrote: The only way the Fed can affect the economy is by keeping interest rates low, which is supposed to increase borrowing in order stimulate consumption and investment. Unfortunately, we are in a balance sheet recession, and households are trying to delever, not take on additional debt. Businesses have increased their borrowing over the past few years, but once again, they won't invest until they are confident there will be consumers to buy their products. What we need is more fiscal stimulus in order to expedite the deleveraging process and strengthen household consumption. The best way to do this is through a full payroll tax holiday that instantly gives everyone working a 4% raise. We should also hire anyone who wants a job but is unable to find one. It shouldn't be hard to find them something, anything productive for them to do.
People are also not rational. A partial tax deduction which equates to a raise is not the same as someone showing up to their door and handing them that same amount in cash. Whose more likely to spend money? The person with $100 cash-in-hand or the person expected to pay somewhere around $100 less taxes/'get a tax rebate' in six months?
This is my personal solution. Give every American who claims on their 1040 a personal exemption and dependent(s) a $2,000 check per personal deduction. Current credit debt is ~$13K, and normal levels say it should be around $9K? Average US household is 3.14 people? Delevering should end. Every household would have around $2,000 extra to use for consumption. Consuming Restarts. Economy restarts. Total cost would be around $610 billion, less than the last "stimulus," and far more effective.
