Fixing upside-down tax breaks should be a no-brainer, but…
William Gale, co-director of the Tax Policy Center, has dusted off a five-year-old plan to convert tax deductions for retirement savings into flat-rate refundable credits. Gale’s new proposal, like the one he co-wrote in 2006 with Jonathan Gruber and Peter Orszag, would make 401(k) subsidies less skewed toward high-income households.
In the new paper, Gale proposes a version that would raise tax revenues by $450 billion over 10 years by reducing the proposed government match from a revenue-neutral 30 percent to a revenue-raising 18 percent. These savings, which would come primarily from cutting tax breaks for households in the top income quintile, could stave off deeper cuts to other government programs or fund the president’s proposed jobs bill.
This seems like a no-brainer, and from a pure policy perspective, it is. Current tax breaks are very poorly targeted. For the same dollar contribution to a 401(k), high-income taxpayers in the 35 percent tax bracket get a tax break that’s three-and-a-half times larger than the tax break received by moderate-income taxpayers in the 10 percent bracket. Combined with the fact that high-income households can afford to save more, the result is that an estimated two-thirds of these tax breaks go to households in the top 20 percent of the income distribution. And since most high-income households are already saving, they can simply steer funds into tax-favored accounts, which is why “tax break” rather than “tax incentive” is the more accurate term.
Gale touts his plan as a progressive one, and in a sense it is, since it would reduce the cost of a highly regressive tax break while potentially easing the pressure on essential government programs. But there’s a difference between “less regressive” and “progressive.” Most of the subsidies would still flow to high-income households who can afford to save more and who also tend to get more help from their employers.
An 18% government match will not change the fact that high-fee, high-risk, 401(k)s are not an affordable retirement vehicle for low-income or even middle-income families. And since the funds are still taxed when they’re tapped for retirement, the value of the tax break remains tied to investment returns. (It helps to think of the tax break as a no-interest loan from the government, the value of which depends on how much you make investing the funds). This also tends to favor higher-income households who can afford to take on more risk.
If Gale’s plan isn’t a solution to the retirement crisis facing our country, isn’t it at least an improvement over the current system? Certainly, as long as it’s not oversold. Tweaking a broken system can forestall more far-reaching reforms. (This might partly explain why Orszag, in his new role as a Citigroup vice chairman, is still free to tout the plan). A more imminent concern is the fact that Gale promoted his plan at a recent Senate hearing as a way to help soften the blow of what he characterized as unavoidable Social Security cuts.
It’s also too bad that Gale proposed a lower government match rather than reducing the contribution limit. The 2001 Bush tax cuts increased the contribution limit from $10,500 to $15,000 and introduced a higher “catch-up” contribution for older workers (these limits are now indexed for inflation). Few middle-class households can afford to contribute $10,500, let alone the current limit of $16,500 (or $22,000 for those 50 and older). Lowering these limits but keeping the 30 percent match would be more progressive and have a real incentive effect, as middle-income households might actually increase their retirement saving, as opposed to high-income households simply shifting money around.
When did the meltdown really begin?
Happy birthday, economic meltdown! (Original title changed to make sure nobody actually thought I was genuinely enthusiastic about the economic crisis…)
Yesterday marked three years since Lehman Brothers filed for bankruptcy – the high-water mark of the financial crisis. Over the next six months, the stock market declined by nearly 40 percent and the economy lost 4.2 million jobs – a pace of job-loss not seen since (at least) the Great Depression.
This episode has firmly tied together the financial crisis and the jobs-crisis in most Americans’ mind. But we should actually be a little more careful about doing this. The economy had already been in recession for eight-and-a-half months before Lehman’s bankruptcy (having shed 1.2 million jobs in seven straight months of losses) and had already swallowed one stimulus package (the Economic Stimulus Act, passed in Feb. 2008 and signed into law by President George W. Bush) with just a small hiccup before continuing its way down. The unwinding of investment bank Bear Sterns (not to mention hundreds of smaller commercial banks) had been done in a more “orderly” manner six months before (it was sold to J.P. Morgan in March 2008) but job losses just accelerated after this. So maybe the subsequent economic damage wasn’t all about Lehman?
In fact, both Wall Street’s meltdown and the American jobs crisis are casualties of the bursting of the housing bubble. The 35 percent decline in home prices between the beginning of 2006 and 2009 damaged banks’ holdings of mortgage-backed securities, which famously caused so much havoc on Wall Street.
But the economic damage inflicted by the bubble’s burst spread far beyond banks’ balance sheets. These same home price declines erased about $8 trillion in household wealth and consumer spending collapsed by over $400 billion as a result. The glut of unsold homes (who wants to buy an asset that is diving in value?) led to another $400 billion contraction in the residential building sector. Basically, these two effects, combined with the collateral damage they caused (state and local government cutbacks as tax revenues plunged and a pullback of other business investment as firms saw sales dry up) meant that the economy was staring (at least) a $1 trillion hole in overall demand for goods and services square in the face. And this hole, along with policy responses that were insufficient, can easily explain the depth of the recession we had without any reference at all to what was happening in the financial markets on Wall Street.
So was the Lehman blow-up and associated panic all just a side-show to the issue of jobs? That’s probably too strong. There’s serious economic literature arguing that financial market seize-ups can have significant effects on the non-financial economy. So maybe instead of the $1 trillion hole that we ended up, with the economy would have had a $2 trillion hole had policymakers allowed financial markets to completely shutter (hence shutting down credit even for still-viable businesses and households).
Maybe. However, we know the story of how policymakers reacted to the financial market distress: with near unlimited willingness to put public funds on the line and great deference to incumbent players. And, this mostly worked – there is little evidence that financial markets are actually providing a great impediment to U.S. recovery (this is not to say that an alternative set of policies to alleviate financial market distress couldn’t have also worked – and with less danger that by coddling incumbent players that we’ve just reassured them that no matter how poorly or riskily they do their jobs they’ll be bailed out again).
So how did policymakers react to the crisis left over after the ambitious financial market response – that $1 trillion hole in the economy caused by the purely non-financial sector fallout of the housing bubble? With measures that were clearly seen as insufficient in real-time. Wouldn’t it have been nice if policymakers had been as assertive in making sure that the job-market was healthy as they were in making sure that financial markets were healthy? If one was cynical you might think that the economic struggles of rich bankers are more important to policymakers than the struggles of ordinary workers.
Contrary to misinformation campaign, NLRB Boeing ruling consistent with long-established labor law
For more than 75 years, the National Labor Relations Board has had the power to protect employees in their right to organize by ordering employers to return operations that the employer moved in retaliation for the exercise of protected rights. This power has always been recognized and has been exercised by Republican appointees, including, in 1987, those of President Reagan, who ordered an employer that refused to bargain in good faith to return work to a warehouse operation it had closed (Century Air Freight).
Yet the Chamber of Commerce and the House Republican leadership want people to think that the NLRB affirming this same anti-retaliatory principle in the Boeing case is something extraordinary, that it is a new assertion of government power by the Obama administration, which is bending over to do a favor for its union friends. Accordingly, House Republicans are advancing legislation that would overturn long-established labor law and prevent the NLRB from “ordering any employer to close, relocate or transfer employment under any circumstances.”
The media have failed to point out that these assertions of newly exercised, politicized authority are objectively false, and instead, have given full expression to the campaign of inaccuracies and misstatements. Even Steven Greenhouse in the New York Times falls into this trap, though he does point out that moving work to retaliate against the exercise of protected rights is illegal.
To get to the actual facts of this matter, I am printing the section of the NLRB General Counsel’s report from 2006 that deals with the NLRB’s power to restore the status quo when work has been relocated in violation of the National Labor Relations Act. The author was Arthur F. Rosenfeld, who served as General Counsel from June 2001 to Jan. 2006, and who was not just a George W. Bush appointee, but had served as counsel to Senate Republicans on the committee with jurisdiction over the NLRA and the NLRB.
Mr. Rosenfeld stated: “We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition.”
So is Obama’s NLRB overreaching and creating some new extraordinary power for the government? Clearly not. Even under Republican administrations, ordering an employer to move work back after it had been relocated illegally was “typical.”
Here is the relevant section of Rosenfeld’s 2006 GC Memorandum:
3. Subcontracting or other change to avoid bargaining obligation
These cases involve an employer’s implementation of a major entrepreneurial-type decision that adversely affects unit employees: for example, subcontracting or relocating entire plants, departments, or product lines. Such changes can be discriminatorily motivated, i.e., designed either to interfere with a union organizational campaign or to escape from an incumbent union, and thus violative of Section 8(a)(3).7 The change can also be independently violative of Section 8(a)(5) if undertaken without satisfying an employer’s bargaining obligation to an incumbent union. We typically seek an order restoring the prior operation and prohibiting similar conduct in the future. Such relief is necessary because, when these actions unlawfully eliminate all or large portions of an operation and the jobs of unit employees, they undermine the status of an incumbent union or one seeking recognition. Moreover, an interim restoration order preserves the Board’s ability to issue (and courts to enforce) a final order restoring operations without it being too burdensome for the respondent because of the passage of time or the prior alienation of the old facility or equipment.Based upon these considerations, courts have granted interim restoration of operations in these situations. See, e.g., Maram v. Universidad Interamericana de Puerto Rico, Inc., 722 F.2d 953 (1st Cir. 1983); Aguayo v. Quadrtech Corporation, 129 F. Supp.2d 1273 (C.D. Ca. 2000). In certain cases the courts have granted a less drastic interim remedy of preventing the sale or alienation of a facility pending a Board decision. See, e.g., Hirsch v. Dorsey Trailers, Inc., 147 F.3d 243 (3d Cir. 1998). See also Dunbar v. Carrier Corp., 66 F. Supp.2d 346 (N.D.N.Y.), stay denied 66 F. Supp.2d 355 (N.D.N.Y. 1999).
The single case authorized by the Board in this category during the reporting period involved the discriminatory relocation of unit work. The case was successfully resolved with a Board settlement.
Young children and unemployment
We know that children are disproportionally impacted by unemployment and underemployment. EPI has already looked at the total number of children who live in families with at least one unemployed or underemployed parent ( see this snapshot, or this paper).
Given the importance of early childhood development, we should be very concerned with the well-being of young children and how they are impacted by parental unemployment. Having an unemployed parent increases the risk for disruptions in nutrition, housing, and education–all of which are important for brain development specifically and a child’s future more generally.
The figure below shows the percentage of children living in a family with at least one unemployed parent, with a further breakdown of the share of children aged from 0 to 5. The chart shows 2010 (the most recent data available) compared with pre-recession levels in 2007, and also a breakdown by race.
The data shows that kids overall are more likely to be impacted by unemployment, and that children 5 and under are even more at risk. In 2010, 7.5 million children (10.6 percent of all children) lived in a family with at least one unemployed parent. Of those, 2.8 million (11.4 percent of all similarly aged children) were children 5 years old and younger. This is about twice as many children at this age who lived in a family with at least one unemployed parent in 2007, prior to the recession. About 1.2 million of these children 5 and under live in single-parent families where their parent is unemployed.
The impact also varies by race and ethnic status, with children between the ages of 0-5 in black families facing unemployment at twice the rate (18.5 percent of all similarly aged children) as white families (9.1 percent); and Hispanic families (13 percent) are also above the national average.
It’s important to note that these are not families that simply choose to have one parent remain at home, but rather families in which one or both parents want to work, but are unable to find a job.
With children overall, and especially younger kids, being hit hard by unemployment, spurring job creation is not just good policy in the short-run, but is essential for our nation’s long-run economic health.
Greedy geezers?
The New York Times reported this morning that the only group that saw an increase in household income since the recession were households 65 and older, who saw an increase of 5.5 percent between 2007 and 2010. The Times opined that, “Such data is likely to feed longstanding debates about generational equity, since the largest portion of safety net spending goes to those 65 and older…” But a closer look at the table in the article shows that older households still have incomes roughly half those of households in their prime working years.
The Times correctly notes that income growth for this group reflects the fact that they are less affected by the weak economy since much of their income comes from Social Security and pensions. The Times notes that “the generation now retiring has been the most prosperous in history” and the growth in their incomes reflect this. However, the article should have made clear that each generation of seniors is normally better off than preceding generations due to economic growth, though this pattern may not hold true in the future, especially if Social Security benefits are cut.
The Times should also have added that older households saw a sharp decline in net worth due to the stock market and housing collapse, a fact not reflected in Census income measures. Though households in all age groups were affected by the collapse of these asset bubbles, older households have less time to make up their losses.
Millions of jobs left on the table
It was great to see President Obama challenge congressional Republicans to do something real about jobs. His jobs bill, submitted to Congress Monday, would support 2.3 million new jobs and provide continuing support for another 1.6 million jobs. But his plan requires congressional approval, which is about as likely as a World Series appearance for Washington’s sub-.500 Nationals this year.
With unemployment at 9.1 percent, our economy desperately needs at least 11 million new jobs now just to get the unemployment rate down to pre-recession levels. We cannot allow the political stalemate in Washington to stand in the way of a full set of bold job creation initiatives. The president should take immediate, executive action that will directly support the creation of up to 2.25 million export jobs by eliminating unfair currency manipulation by China and other countries.
The administration wants to stimulate exports, and that’s a good idea, but if and only if it improves the trade balance. Growing exports support domestic employment but growing imports displace domestic jobs; meaning that we need policy changes to boost net exports. The president included an oft-repeated promise in his speech last week that he will soon send legislation to Congress to implement Bush-negotiated free trade agreements with South Korea, Colombia and Panama. Passage of those FTAs would be a terrible idea because all past evidence indicates that FTAs are not an effective tool for improving the U.S. trade balance and stimulating net job creation.
If the president was serious about boosting net exports he would take significant action to stop the currency management of our trading partners that has hamstrung the competitiveness of U.S. producers. He has the authority to do this without Congress – and swift and independent action could help to create millions of new jobs over the next 18 to 24 months.
The best estimates are that currency intervention by our trading partners (i.e., buying U.S. dollar-denominated assets to boost the value of the dollar and keep their own currency artificially cheap) raises the cost of U.S. exports – both to the intervening countries (China is the most important one) as well as to every country where U.S. exports compete with goods coming from there. China’s currency intervention has also compelled Hong Kong, Singapore, Malaysia and Taiwan to follow similar policies in order to protect their relative competitiveness and to promote their own exports.
In a recent report on the benefits of revaluation, I showed that full revaluation (28.5%) of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, increasing U.S. gross domestic product by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years.
This revaluation done quickly would be a win-win – it would help workers in China and other Asian countries by reducing inflationary overheating and increasing workers’ purchasing power in those countries.
There are several different actions that can be taken by the Obama administration to put pressure on China. First, it can and should identify China and the other countries listed above as currency manipulators when the Treasury releases its Semiannual Report on International Economic and Exchange Rate Policies in mid-October. This would trigger mandatory negotiations which could result in sanctions if the issues are not resolved. Secretary Tim Geithner has consistently refused to name China or any other country as a currency manipulator, despite all available evidence to the contrary. The administration could also file complaints with the World Trade Organization (WTO) about China’s currency manipulation and request dispute resolution.
The administration could also endorse China currency legislation that has been introduced in both the House and the Senate. The Currency Reform for Fair Trade Act (HR 639, S 328) was passed by an overwhelming majority of both Democrats and Republicans in the House in 2010, but the bill died in the Senate. The scope of the bill is a bit limited – only 3 percent of Chinese imports would be affected – making it something of a rifle shot; larger artillery may be needed to persuade China that it’s in its own interests to revalue.
The mere threat of a large, across-the-board tariff on imports from China may be sufficient to persuade China that the time has come for a major revaluation that would benefit both countries. In 2005, Senators Charles Schumer and Lindsey Graham introduced legislation (S. 295) that would have imposed a 27.5 percent tariff on all imports from China if it failed to revalue within 180 days. This legislation was approved by the Senate (by a veto-proof margin of 67-33) but not by the House. Even so, shortly after its passage, China allowed its currency to rise for the first time in more than a decade. The currency ultimately appreciated by 20 percent, until the onset of the great recession in late 2007, when it was again tied to the dollar. China will respond to the threat of severe external pressure – especially since their policy of intervention has clear downsides for them as well.
The U.S. needs at least 11 million jobs to eliminate excess unemployment. Fiscal policy, if it can be enacted, is a good start, but the task before us is huge. We need a job strategy that pulls every available policy lever. The best place to start is with exchange rates—a lever that can be pulled by President Obama even if Congress refuses to help.
More revenue should be raised from those at the top, not at the bottom
Progressives believe the highest-income households should contribute more revenue; conservatives counter that the bottom half of earners should be paying more. When pressed about the need for revenue and shared sacrifice, House Majority Leader Eric Cantor recently lamented that nearly half of Americans don’t pay federal income taxes. Texas Governor Rick Perry went further, decrying this result of the tax code an “injustice.” This is a misleading grievance demonstrating a misunderstanding of the tax code: more than four in five households pay federal taxes and the role of the income tax is to adequately fund government without pushing more families into poverty.
While 46 percent of Americans won’t pay federal income taxes this year, 82 percent of households will pay federal income taxes and/or social insurance payroll taxes—predominantly Social Security and Medicare contributions. Payroll taxes are a tax on earned income and cannot be ignored because they are both regressive and substantial. Lower-income households pay higher average social insurance tax rates than upper-income households and these taxes brought in $865 billion last budget year (40 percent of all revenue).
A recent Tax Policy Center report explains that the basic structure of the tax code accounts for half of the 46 percent of households owing no income tax, while tax expenditures (preferences and credits) eliminate remaining income tax liability for the other half. The income tax code intentionally spares subsistence levels of income from taxation, hence the standard deduction ($5,800 for single filers and $11,600 for married joint filers) and personal exemption ($3,700). Of the households made nontaxable by tax expenditures, 44 percent pay no income tax because of special tax treatment for the elderly and 30 percent pay no income tax because of credits for children and poor workers.
Of the narrow 18 percent of households paying neither income nor payroll taxes, 57 percent are elderly households and 38 percent are non-elderly households with less than $20,000 in income. There simply isn’t much income here for taxes to collect: the lowest earning 20 percent of households (earning under $20,500 in 2007 dollars) received only 4 percent of pre-tax income in 2007, compared with 19 percent captured by the top 1 percent of households (earning above $352,900).
Broadening the tax base so that substantially more tax filers pay income taxes would require reducing the personal exemption, standard deduction, extra standard deduction for the elderly, exclusion of some Social Security benefits from taxation, child tax credit, or earned income tax credit. (Alternatively, higher employment and more evenly shared income gains would raise the number of households paying income taxes).
Forcing a higher tax burden on those with little to live on is a twisted concept of shared sacrifice, particularly when poverty has climbed to a 17-year high and recent income losses have been most pronounced at the bottom of the earnings distribution (see Figure H in this EPI analysis). Tax policy should instead focus on where the income gains have been concentrated over the last three decades.
Deficit “super-committee” must focus on jobs too
Oregon Senator Jeff Merkley deserves praise for his effort to keep the focus on America’s job crisis. His suggestion that the Joint Select Committee on Deficit Reduction (aka the “super-committee”) request the Congressional Budget Office to score the committee’s proposals for not only their budgetary impact, but their impact on unemployment is brilliant in its simplicity.
If this were to happen, folks would be able to see the impact of the committee’s proposals on both the deficit and the labor market. They would also see the foolishness behind the deficit hawks’ repeated assertions, here, here, and here, that reducing the deficit will reduce unemployment.
The vast majority of across-the-spectrum respected economists, including my personal (non-EPI) favorite, Paul Krugman, have made the case quite convincingly over, and over, and over, that cutting spending in a time of high employment is the height of foolishness.
As for EPI, we said it here, and here, as well as plenty of other places. I’m convinced and I’m not even an economist. Here’s to hoping that we’ll see some common sense come out of the so-called super-committee.
Young adults increase employer-sponsored insurance as their employment rates fall: Evidence the Affordable Care Act works
On Tuesday, Sept. 13, after the U.S. Census Bureau presented the latest data on income, poverty, and health insurance coverage for 2010, many wondered whether we’d see any effects of the Patient Protection and Affordable Care Act, commonly know as health reform, in this release.
Health and Human Services Secretary Kathleen Sebelius argued that we did. In her piece, “Affordable Care Act in Action,” published in the White House blog, Secretary Sebelius pointed out the significant increase in coverage rates for young adults, ages 18-24, as a sign that health reform is working. Sara Collins, Tracy Garber, and Karen Davis of the Commonwealth Fund argued as well that young adults are already benefiting from the Affordable Care Act, using as evidence the 2.0 percentage point decline in the uninsured rate for young adults. Writer Jonathan Cohn with the telling title “Gosh, Could Obamacare Be Working” makes a similar argument, using a nice graphic as well.
All three articles rightfully point to the fact that the uninsured rate for young adults, 18-24, fell between 2009 and 2010 and, in fact, this was the only age group with a statistically significant decline in their uninsurance rate. They argue that the provision of health reform allowing young adults up to age 26 to stay on or join their parents’ employer-sponsored health insurance policy, is to credit for this up-tick in coverage.
An alternative explanation for the rise in insurance coverage among young adults could be that they are simply faring better in the labor market than other age groups. This is simply not the case – in fact, their simple employment rates deteriorated more than any other age-group.
In this figure, I compare changes in the employment rates and the rate of employer-sponsored health insurance for various age groups between 2009 and 2010. As you can see, the job-market didn’t do the younger group any favors between 2009 and 2010. Their employment rate actually fell further than any other age group. On the flip side, their rate of employer-sponsored health insurance actually rose.
To me, this is strong evidence in support of the argument that health reform is beginning to work.
Click the figure to enlarge
Payroll tax cuts – just how much bang for buck?
The Obama administration’s proposed American Jobs Act is heavily weighted towards payroll tax cuts – more than half of the total cost is accounted for by cuts on either the employee or employer side. And it’s widely assumed that the direct spending provisions (about $100 billion in mostly infrastructure spending) have the least chance of making it out of the legislative process. Should this worry us?
At least a little. From an “old Keynesian” perspective, payroll tax cuts should work pretty well. Money in peoples’ pockets should probably boost their spending. There’s microeconomic work suggesting that people do respond pretty robustly to increased cash-on-hand and the macroeconomic multipliers tend to show that payroll tax cuts are pretty decent stimulus – far outpacing most other tax cuts, though falling well short of direct spending and transfer payments.
However, from a “new Keynesian” perspective, payroll tax cuts may be not only less effective than advertised, but actually outright contractionary.
Gauti Eggersston has written a number of papers about how to think about the effects of macro policy when the economy is “at the zero bound” of short-term interest rates – like today’s American economy. In one paper he warns specifically about the contractionary possibility of payroll tax cuts. The (very) simplified intuition is that these tax cuts increase take-home wages and hence provide incentives to workers to increase the hours of work they supply the labor market. This increase in labor supply puts downward pressure on overall wages which pushes down prices. This price decline increases real interest rates (which are simply nominal rates minus inflation), which slow economic activity as well, thereby reducing aggregate demand.
As unemployment is simply the difference between labor supply and labor demand, payroll tax cuts exacerbate this gap on both sides – increasing labor supply and reducing economy-wide demand. During normal times, the Federal Reserve can short-circuit this vicious cycle simply by cutting nominal rates – but the short-term rates controlled by the Fed already sit at zero.
How seriously to take this warning?
On the one hand, John Taylor, an economist at Stanford and a vociferous critic of the Obama administration’s American Recovery and Reinvestment Act (ARRA), claims to have found no effect at all of temporary tax cuts on household consumption.
On the other hand, Taylor claims that even policies that are very well-targeted to cash-strapped households had no effect on spending – essentially arguing that even unemployment insurance and food stamp increases were saved dollar-for-dollar by recipient households. This seems implausible.
And, Dean Baker and David Rosnick re-examine Taylor’s results and show that temporary tax cuts do boost consumption by an amount greater than zero once one allows for a structural break post-2008 in the effect of stimulus on consumption (and, the rationale for assuming that the post-2008 economy is behaving very differently from what came before seems solid for pretty apparent reasons – Great Recession, Lehman Brothers, etc.).
Lastly, one should note that the payroll tax cuts of 2011 have not been accompanied by an obvious surge in labor supply – labor force participation rates fell by slightly more between January and August of 2011 than they did between the same months of 2010, even as the payroll tax cut should’ve induced more labor supply than the Making Work Pay tax credit it was frequently cited as “replacing”.
So where does this leave us on the question of payroll tax cuts? They probably do some good – even Eggersston notes that if they go to cash-strapped households that the “old Keynesian” effects may dominate the “new.” But it should be clear that a fiscal jobs bill weighted more than half towards payroll tax cuts is one clearly tailored at least as much for political traction as economic impact.
If the choice is “payroll tax cuts or nothing,” I’ll take the cuts. But, there are clearly more effective measures to spur job growth (the direct spending components of the American Jobs Act, for example) and the economy will be better off if these are part of any final legislation.