[ibsulon]

This makes no sense to me, even when I've seen it before.

I'm the classic saver. I'm the individual who they want to spend more right now.

I'm saving because it's not a certainty that my contract will be renewed right now. I could very well end up living off the savings I'm accumulating right now.

If you reduce my payroll tax, I won't spend more. I'll save more. ___

If someone is unemployed, reducing the payroll tax is not going to change anything.

If someone is insecurely employed, they aren't going to change their spending habits, they will change their savings habits. There is no gain. That's most everyone right now!

Further, why is it going to help for me to buy more Saudi, Mexican, and Venezuelan gas, or buy more Chinese goods? It seems to me that providing a sales tax break for goods and services originated in the United States would provide a much better economic lift. (I don't know if this would be legal, however.)

[noss]

A sales tax break for goods originating from US is, in all ways, a trade barrier. You can expect global mutual treatment. That means decreased foreign demand for US products.

So you end up sponsoring US companies that were not capable to compete with more efficient foreign companies. Which is in itself a more interesting problem. Most European countries have as high, or higher, standard in working conditions (and TAXES!) and they do have positive trade balance.

Does it really seem like a wise decision to make US produced products less attractive on the global market, for the hope that tax cuts on domestic products will match up, and then some, with increased income tax from the new jobs?

An alternative is to instead use taxes to set up better public transport, so the time-and-cost-to-get-to-work radius around companies increase. Making it both easier to find the right competence (larger area, more people to chose from) and making more real estate close (time-wise) to the city, making the cost of living lower.

[ibsulon]

I agree with all these points, but the point I had been trying to make is that increasing spending in the face of a trade deficit means that we are doing more to spur China's economy than our own.

I'm not sure that the public transport makes a difference with our car culture and low population densities. I can't really think of a good way to do a subway in LA, for example, though they tried.

[CWuestefeld]

The goal is not to get you (or any other particular individual) to spend more, but to increase aggregate demand.

I'm assuming that the form of savings that you pursue is not "stuffing money under the mattress", but to put the money in the bank, or invest in equities or bonds or commodities.

If you invest in commodities, that is of course spending on commodities.

If you invest in stocks or bonds, you're providing capital to other companies, who will then spend it. This is good, but since some of their spending will be on facilities, it may not be the kind of spending we want (i.e., consumer good). On the other hand, some of it may go to paying for employees, which is obviously a very good thing, and goes to decreasing the uncertainty that you're concerned about.

And if you put it in the bank, it's going to be loaned out to either consumers for their own spending, or to business as discussed above. (caveat: so far this year, banks have tended to increase their reserves rather than increase lending. I think that phase is done, though)

[ibsulon]

However, the government is functioning like a corporation currently with its spending.

(And I'm not convinced banks are finished increasing their reserves. Wells Fargo is still in the danger zone after acquiring Wachovia, as one example.)

[CWuestefeld]

In a way, but it's doing so more like a drunken sailor than with any rationality.

The Austrian school says that recessions occur when the economy gets over-invested in some area. The recession occurs as we recognize that what we've invested in is not worth as much as we thought ("hey, these are just regular crackers!"). Then the values roll back as we get out of that dead-end while moving our investments into better values.

To the extent that this is true, our government is not helping. They're spending with abandon, but direction of the spending is either wildly shotgunned, or politically correct. With the decisions in the hands of the people and corporations making up the market (I think I can see you cringing as I say that), the processing of transitioning will in all likelihood be faster and much more efficient.

[ensignavenger]

The increased demand would come as businesses would be more willing to hire new employees- as without payroll tax, it would be cheaper for them. If this increases the employment by 5% (Or even 1%) it would put a lot of people back to work- and your your job much more secure.

[sethg]

People further down the income scale are going to save less of their marginal income. If someone is working but for so little money that they're constantly thinking "this week, should I buy food, or try to catch up with the rent?", and their take-home pay suddenly goes up by $20 a week, they are not likely to put that $20 in a savings account.

[steveplace]

http://en.wikipedia.org/wiki/Paradox_of_thrift

Also, I'm a big fan of a revenue neutral tax shift from payroll to energy/carbon.

[nazgulnarsil]

you've missed the point in spectacular fashion. aggregate spending has been above incomes for years due to easy credit. of course at some point you need to increase savings to make up this shortage. the whole point of a payroll tax holiday is that it would get us through this phase faster and back to spending.