Stimulus

Banking on Tax Time

March 29, 2011

Policy makers are catching on to what retailers have long understood: tax time is an opportunity to cash in. Why? Listen to the grumbling around you about the impending filing deadline. Everybody is annoyed because EVERYBODY (not a precise measurement) files taxes. This makes tax filers a big market. Next, the refund.  A lot of people get A LOT of money back in their tax refund. The result is an abundance of businesses offering suggestions about where all those people can spend all that money.

The Quake, the Economy, and the Markets

March 22, 2011
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-- This is a guest post by Jay Pelosky, Principal, J2Z Advisory, LLC --  Japan’s massive earthquake, follow on tsunami and subsequent nuclear power plant upheaval have reinforced uncertainty regarding the strength of global economic activity and the appropriate financial assets prices to reflect that activity. The Arab Spring and EU debt crisis meant such uncertainty was already in the air in the weeks preceding the March 11th earthquake.

A ‘Jobs First’ Growth Strategy

  • By
  • Leo Hindery,
  • New America Foundation
March 1, 2011

The opening theme of the 2011 State of the Union address, and the theme that the President has carried forward since then, was his insistence that the nation has at long last emerged from economic crisis.  He said: “Two years after the worst recession most of us have ever known, the stock market has come roaring back.  Corporate profits are up.  The economy is growing again.  And after two years of job losses, we’ve added private-sector jobs for 12 straight months -- more than 1 million in all.”

Failing to Fill the Holes in State Budgets: Why the Recovery Act Spending on Infrastructure Fell Short

  • By
  • Samuel Sherraden,
  • New America Foundation
February 17, 2011

…We are remaking the American landscape with the largest new investment in our nation's infrastructure since Eisenhower built an Interstate Highway System in the 1950s. Because of this investment, nearly 400,000 men and women will go to work rebuilding our crumbling roads and bridges, repairing our faulty dams and levees, bringing critical broadband connections to businesses and homes in nearly every community in America, upgrading mass transit, building high-speed rail lines that will improve travel and commerce throughout our nation.

Video: Showing the Power of the EITC in California

February 16, 2011
Sen. Carol Liu delivers opening remarks

Yesterday's policy event, The Power of the Earned Income Tax Credit: Reducing Poverty, Creating Jobs, and Increasing Small Business Revenue, brought Capitol staff, advocates, and policymakers together to discuss what's changing with the EITC, and what that means for asset building.

The Pillars of Economic Transformation

  • By James K. Galbraith, University of Texas at Austin
February 1, 2011

In his 2011 State of the Union, President Obama outlined a sweeping program for economic transformation, resting on innovation, education, infrastructure, deficit reduction, and governmental reform. The New America Foundation asks whether these are the right “pillars” of a national agenda.  

The Payroll Tax Cut Takes Effect: Did You Notice?

January 28, 2011
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By this point in the year, almost everybody with a job has gotten a paycheck. Did you notice the latest tax cut brought to you by President Obama?

The tax deal cut during the lame duck session of Congress included a provision to provide a payroll tax cut for 2% on the amount that normally is allocated to the Social Security program. Previously, both employees and employers contributed 6.2%. This year that level is going down to 4.2% for workers, while the employer contribution remains the same. The Social Security Trust Fund will be credited with full contributions, so long-term financing issues won’t be altered. But it does lower the taxes collected from almost every single paycheck.

The administration’s idea was to replace the Making Work Pay Tax Credit (MWPTC) which expired at the end of the year. Without a replacement, everybody would see their taxes go up and their take home pay go down. Did you notice?

The deal came together pretty quickly and accordingly was not particularly scrutinized. It certainly was one way to get more money in the economy for the upcoming year. This may have been a decent political route for the Obama administration to take since they probably had their doubts about what kind of fiscal policies they could get through Congress in the coming year to help the sluggish economy.

Perhaps this reality in and of itself justifies the approach. Having more money in the hands of families during the next year seems like a good idea on a number of fronts. For some, this will help them get out from under their debts and deleverage. For other, it provides a bit more money to spend on necessities and in the aggregate increase consumer demand. And for other families, it will help jumpstart their savings process and accumulate the necessary resources to invest in their future. I think all of these are important and don’t believe it is the responsibility of working families to solve our national economic woes and increase their spending regardless of their circumstance.

But I have two main concerns about this approach. First, I’m not sure people will actually see this as a windfall, which may actually blunt its impact. Sure, the classical economists tell us that utility maximizing people will it figure out in the end. But I think the behavioral economists are helping uncover the value of “salience.” What people see and know can make a difference. That is why I am not sure that the small tweak to the paycheck deductions was the best way to get the most bang for the proverbial buck. Increasing tax refunds or one-time cash back infusions may be more effective for the objectives at hand.

Second, for many families the new policy is much less significant for families on the lower half of the income scale. This is because it is worth less to them than the value of the MWPTC. Workers earning under $40K a year will actually see their overall take home pay go down and not up.

The MWPTC was a flat credit ($400 for individuals and $800 for the married among us). It did have income restrictions and phaseouts that kicked in once incomes got well up the income ladder ($75K for individuals and $150K for couples). In contrast, the payroll tax holiday is based on a percentage. And it goes all the way up the wage scale until the Social Security cap kicks in at roughly $100K per worker. This means the holiday is still quite valuable for a higher earner. Anyone pulling down that six figure salary would benefit around $2,000. If you earn less, the benefit is way less too. A married couple making $30K a year and filing jointly would save only $600 under the new scheme instead of $800 under the MWPTC. For those with lower wages, the deal is worse than the one they got last year. And it’s worth keeping in mind that the percentage of families making under $40,000 a year is 45%, which means that a pretty high number were given the short end of the stick. Meanwhile, once again, life looks a bit different for those with higher incomes.

And while I think that increased saving and deleveraging are fairly high priorities for many families in addition to maintaining their spending and consumption, the payroll tax holiday approach may be less effective as a stimulus for the broader economy. If we want the money to circulate in the economy, it would be better to give it to people who will spend it, which is more likely to be those on the lower half of the income distribution.

Deaf to History’s Rhyme: Why President Obama Is Failing

  • By
  • Thomas Palley,
  • New America Foundation
December 2, 2010 |

The great American novelist Mark Twain observed “history does not repeat itself but it rhymes.” Today the rhyme is with the 1930s, and if you don’t hear it, read FDR’s great Madison Square Garden speech of October 1936:

Happy Holidays from the IRS

November 18, 2010
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Excitement and joy are not the typical responses to receiving a letter from the Internal Revenue Service. But an effort launched by the IRS in California is changing that- just in time for the holiday season.

This week and next week, 46,000 households throughout California are getting letters in the mail telling them they may have qualified for the Earned Income Tax Credit last year, and that it's not too late to claim their refund (which for these folks, is an average of $1,400). Talk about a Christmas bonus.

Where Are the Peasants with Pitchforks?

  • By
  • Michael Lind,
  • New America Foundation
October 26, 2010 |

In the aftermath of a global economic collapse brought about in part by the corruption of big government by big finance, many pundits expected a voter backlash in America to take the form of a combination of populist anti-elitism and statist anti-capitalism. But that has not happened, nor is it likely to occur. In the United States, the populists are anti-statist and the statists are anti-populist.

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