Since Obama is asking to be shown good ideas for stimulus spending, I asked Jamie Galbraith if I could publish an argument he made over e-mail to use Social Security for stimulus. The short version is raise Social Security benefits and cut payoll taxes. plan has two parts. The long version follows:
Social Security benefits should be increased now. The crisis is going to cause havoc with the purchasing power of the elderly as a bloc -- Mark Zandi's estimate, which is as good as anyone's is about two percent of GDP. That's enough to offset -- to nullify -- the entire Obama expansion package, right there. A big increase in basic SS benefits would compensate for that effect.There is no reason -- none -- for progressives to continue acquiescing in the notion that payroll taxes should fund social security benefits, and certainly no reason to continue with a system where payroll taxes, now and for the immediate future, grossly exceed social security benefits currently being paid. The sooner benefits go up and payroll tax rates go down, the sooner the economy will stabilize.A payroll tax holiday will give every working family an after-tax pay increase of ~8.3 percent, and every employer a comparable cut in labor costs. That will stabilize a lot of mortgages that would otherwise go belly up, and pay down a fair amount of credit card debt.
Remember, too, that the payroll tax is highly regressive. it only affects the first $102,000 of income. So someone who makes $102,000 pays payroll taxes on their full salary. Someone who makes $6 million pays payroll taxes on...$102,000 of their annual $6 million. This is the sort of tax cut I could get behind.
