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'The Democrats Have Lost Their Way'

letsgetitdone's picture

This is the second in a series of posts based on youtubes from a speech in Milford CT by Warren Mosler. Warren is running for the Senate in CT in the Independent Party primary. Unlike both the Democratic and Republican candidates Warren really understands economics and his forté is explaining it to people. Here's a youtube on his proposals for restoring our economy to normal functioning and to full employment. Warren has a three point program: 1) A FICA Tax Holiday for both employees and employers to restore purchasing power and encourage sales; 2) A one-time Federal subsidy to the States of $500.00 per person, to use as they please, but primarily intended to stop the impending collapse of State employment and the accompanying fall in purchasing power; and 3) A permanent Federal Jobs Guarantee Program (FJG), which will guarantee a Government job at $8.00 per hour, with full fringe benefits, to anyone who wants to work.

The FJG would function as an automatic stabilizer in the sense that Government spending for it would expand during times when the non-Government sector cuts back employment, and would contract, when the non-Government sector increases employment. Of course, the FJG would also produce full employment, a recognized obligation of the Federal Government since the end of World War II, which it has been studiously ignoring since the 1970s, when it began to prioritize inflation over employment. Here's Warren again:

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability)

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CMike's picture
Submitted by CMike on

The last political line of defense for Social Security (Medicare too) is that voters know they have paid for their benefits and they feel entitled to them. If Social Security were to be decoupled from its dedicated revenue stream, that would make the argument that Social Society is a welfare program we can not afford one with greater resonance than it has now. Hell, these days the malefactors of wealth are getting traction arguing that Social Security is a fully funded program we can not afford.

If you were to institute a payroll tax holiday it would be politically difficult to end it and start collecting the tax again. Younger workers, especially, would be resentful of a reduction in their take home pay for a program they are not sure will ever benefit them once they get in the habit of receiving a few pay checks not subject to any FICA withholding.

Employers know a large percentage of the work force lives from pay check to pay check, or, in any event, have less than six months in savings. Employers know that most of those workers value a dollar of take home pay more than they value a future benefit that has a present value worth of a dollar (or slightly more than a dollar). Soon enough employers would take advantage of competition in the job market to pay lower gross wages because workers would maintain their same pre tax-holiday take home pay purchasing power with lower total gross pay. In weak job markets, without a highly organized labor force, the Iron Law of Wages takes over.

Warren Mosler might argue at this point that employers would not be able to reduce gross wages because of the wage floor created by his $8/hr. job guarantee. Now let's get real, politically it's far more likely a FICA tax holiday can be put in place than a universal jobs program and certainly it would be put in place sooner under any foreseeable scenario.

As long as we're talking about Social Security withholding, here's an idea. The government should start collecting an added fossil fuel or, at least, a crude oil tax which would be revenue neutral. All of the money collected from that tax is to be refunded to Social Security recipients as added benefit payment to compensate for their cost from the new tax and to workers and employers as rebates for the first x number of dollars they're paying into the Social Security fund per employee. What you would be doing is shifting some of the cost of Social Security away from a tax on employment and onto a fossil fuel consumption tax. However, it is essential that workers continue to fund their own personal Social Security accounts with payroll taxes and that employers continue to make their contributions to those accounts.

[And is MikeP is still around?]

Submitted by lambert on

The jujitsu move where the tax holiday is "extended" and then SS collapses is all too easy to forsee. I don't think Mosler's being cynical enough here, and by cynical I mean realistic.

warren mosler's picture
Submitted by warren mosler on

first time anyone has criticized this on the grounds that it's deflationary!

most often it's the concern that the increased take home pay will cause 'over spending' and be inflationary.

At that point i usually respond that costs go down for businesses no longer paying their share of the fica taxes, and if they are at all competitive, that means lower prices for consumers.

So let me just say the main reason 8 million jobs were lost and we are 10 million or more jobs behind is because sales fell off. And with the increased spending/sales from the payroll tax holiday all that paid work will quickly return to handle the increased volume of economic activity.

And the odds that full employment levels of aggregate demand will result in lower wages due to lower taxes don't seem all that high?

Submitted by lambert on

It's more what will happen if and when this proposal gets through the legislative sausage grinder.

Now, if a Jobs Guarantee had been passed, we could have more confidence in a good outcome for this idea. But I can see the jujitsu, as I said.