By Robert S. Siegel
Foreclosures filings hit a record in April. That’s bad. “What you’re seeing is the inevitable result of severe job losses,” Nicolas Retsinas, director of housing studies at Harvard University.
Said differently, the people losing their homes now are people the people that did the right things. They took out mortgages they could afford and they maintained those mortgages, until they lost their jobs and everything changed.
We have an opportunity to protect more of the responsible people that did not cause this recession. We can do that quickly by suspending the payroll withholding taxes immediately for all Americans. A family with a household income of $57,000 would bring home an additional $840 in just two months. Some simple math tells us a three month holiday could mean more than $1,200 for that family. That’s a lot of money for a family trying to build up emergency funds, and a lot of money to stimulate the economy from those less concerned.
The likely argument to the withholding tax holiday will be that the government can’t afford it right now. Not with the huge debt from the bailouts and stimulus programs. I am not sure when the government’s needs for our money became a greater priority than our needs of our money, but clearly many people believe that it has. We need our money now and we need to make it clear to the government that it is ours.
Remember that government can only give to one group, in this case the banks and the automobile industry plus the massive stimulus spending, by taking from somebody else. In this case, the government is taking from people that need their money right now.
Many families earning $57,000 could make a house payment with the $1,200 saved from a three month tax withholding holiday. Do we have the legal and moral right to deny that family this chance?
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On the face of it, you seem to be arguing that we need to stop withholding for payroll tax to help people who have lost their jobs (and therefore don’t pay payroll tax). To bolster your argument a little, I will assume you meant to help families that lost one of two jobs, and people who have been forced to take a lower paying job than the one they lost.
I am still not sure how it will help if we still have pay that money anyways when settle our taxes for the year, unless this withholding holiday represents an actual 25% reduction in taxes for the year.
You have argued in you previous post that there are legitimate purposes of government. Therefore, the government needs to be funded to achieve those purposes, therefore we have to pay some sort of tax. Now, my position is that the income tax is a terrible form for this tax to have (as it is proportional to productivity rather than use of government services), but inflation from printing more fiat money is even worse. That is what the government will do if it does not collect payroll withholdings. So, it should be more effective to figure out how the government should cut spending, eliminating its illegitimate functions. If this reduces the government expenses to less than its income, then it will make sense to lower taxes.
Also, the people losing their homes now did not do the right things. They may have done what was thought at the time to be the right things, but it turns out that they were more confident in their incomes and the stability of a housing market in an obvious bubble than they should have been.
Johnathon,
Thank you for a great comment. It is my assumption that a tax holiday means that for that period, ideally three months, the government does not collect that money. The tax holiday does in fact represent a 25% reduction in our taxes.
I would prefer to see dramatic simplification in our tax system as opposed to the continuation of the current complex income tax system. I would also prefer to see the government cut spending, dramatically. But in our current environment, May 14, 2009, I don’t believe we will get that. I do believe, however we can persuade Congress and the President to cut taxes. I believe that the method to persuade Congress and the President is to educate people on how money in the consumer’s hands flow through the economy. The Democrats want to support the little guy and tax cuts help the little guy more because the little guy needs it more.
When I hear people opposing tax cuts, or favoring increases, I find it very effective to suggest that they go tell the guy that does some of my yard work, or the guy that I want to hire to redo the master bathroom that they are not entitled to those jobs because the government has an entitlement program they need to fund.
That is a battle we can win.
The problem is, the government is going to fund its entitlement program whether it collects the taxes for it or not. And if it doesn’t collect enough taxes (which is already true), it will make up the difference by printing more fiat money. So, do you want to fund this program with some portion of your money and the value it represents, or by having the value of your money reduced? Both those choices are bad, and the solution is to actually end the entitlement program.
The real problem is government spending. If we can solve that problem, tax cuts will be easy. If we don’t solve that problem, tax cuts just change how we experience the symptoms.
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