Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
After ‘Supercommittee’ Failure, Burden Falls on Full Congress to Prevent Scheduled Tax Increases, By Pablo Martinez Monsivais/AP
Before lawmakers pack up for Christmas, they must first decide whether to extend the payroll tax break and long-term unemployment benefits, both of which expire Dec. 31.
Extending the payroll tax break and extending long-term unemployment benefits have the essentially same effect on the overall economy. Both keep the deficit from shrinking. A failure to extend these two programs would reduce the deficit, reduce federal money creation and reduce economic growth.
“I find it very hard to believe they would end the benefits all together,” said Dean Baker, the co-director of the Center for Economic and Policy Research. “I don’t think they want to have more people see more money pulled out of their paycheck come Jan. 1.”
President Obama jetted to New Hampshire today to urge Congress, or more pointedly, Republicans in Congress, to extend the 2 percent payroll tax cut that he championed last year. That lower rate, which Obama said put about $1,000 into the average American’s pocket in 2010, is set to rise back to 6.2 percent in 2013.
“If Congress refuses to act, then middle-class families are going to get hit with a tax increase at the worst time,” Obama said. “We can’t let that happen. Not right now. It would be bad for the economy. It would be bad for employment.”
Exactly the same can and should have been said about the supercommittee assignment to reduce the federal deficit. All deficit reductions pull money out of the average American’s pocket. Those who favor deficit reduction, in effect are saying, “I have too much money and assets. I want to pay more taxes and receive fewer benefits from the government.”
In the president’s jobs plan, he not only extends the payroll tax cut, but further decreases the rate from the current 4.2 percent down to 3.1 percent. “That isn’t a band-aid, that is a big deal,” Obama said, adding that the additional cut would save the average taxpayer $1,500 next year.
The payroll tax break alone accounted for about one-fourth of the 2 percent growth in GDP this year, Baker said. In the unlikely event that Congress decides not to extend the cuts, he said it would be a “fairly big hit to the economy.”
Right. So why is Congress trying to reduce the deficit? Why appoint an economic-growth reduction committee?
Extending them, on the other hand, is not likely to boost economic growth either. “It’s not going to make anything better than it is,” said Roberton Williams, a senior fellow at the Tax Policy Center. “It is just going to keep things from getting worse.”
This is something the debt-hawks, who say “the stimulus didn’t work” should understand. The various stimulus efforts, which as I predicted (way back on April 9th, 2008) were too little, too late, did keep things from getting worse.
“One of the things we know about unemployment benefits is they are spent,” Baker said. “If they are not extended, it could lower [GDP] growth again by about half a percent.”
I don’t know where his calculation of ½% came from, probably thin air, but the concept is correct. Reduce the deficit and you reduce economic growth. Period. Reduce the deficit and you exacerbate unemployment. Period.
Both payroll tax rates and unemployment benefits were expected to be included in the supercommittee’s plan to reduce deficits by $1.2 trillion in five years.
A more correct sentence would be: “Increased payroll tax rates and reduced unemployment benefits were expected to be included in the supercommittee’s plan to destroy economic growth, worsen unemployment and bring on a recession or depression, in five years.”
Now that the committee has abandoned any hope of reaching a deal, these two measures could be rolled into the third, and arguably most important, item on Congress’s pre-Christmas to-do list: to pass a budget. “These are all fairly clear items,” Baker said. “They know what they’re talking about and both sides have probably already thought through the next step. I would be very surprised if they don’t pass.”
“Know what they are talking about?” “Thought through the next step?” “Congress?” Pul-eeeze!
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings