Stimulus the Third

There's talk that we may need a third stimulus to help counteract the worse-than-expected economic downturn. Well, there's some talk of it from sane quarters.  On the right, they're talking about how the stimulus "failed" and now we need to cut taxes for the wealthy etc. Which is absurd. The stimulus has worked... it just hasn't done enough. An example of this can be seen here.

In the meantime, there's been some discussion as to what form the third stimulus might take-- more transportation funding? Some tax cuts?  Something else? One thing that I haven't heard at all discussed thus far seems to me such a no brainer on both substance and politics that I don't understand why it's not being considered (anyone who knows and wants to tell me, I'm all ears/eyes).

Why not eliminate the payroll tax cap? Currently payroll taxes only affects roughly the first $106,000 of income. So if someone makes $250,000 a year-- and are thus doing better than 98% of all their fellow Americans-- they're taxed as if they only make $106,000.  If someone makes $5,000,000 a year, they're taxed as if they make $106,000 etc.  This is absurd.

Better yet, when eliminating the payroll tax cap... why not lower the rate for everyone and keep it revenue-neutral? In this scenario, the current payroll tax rate would be lowered for everyone, which would mean instead of the current rate (which if memory serves is around 12%) the rate could be lowered, balanced out by the additional revenue brought in by lifting the cap.

This strikes me as win-win-win. (1) It's revenue neutral and thus won't increase the deficit. (2) It will put money into people's hands noticeably and immediately. And the people whose hands it will put the money into will be the most likely to spend it or use it to pay down debt, both of which are important.  (3) It solves an injustice in our tax code.  (4) It lowers taxes for over 95% of Americans. (5) It lowers the tax rate for everyone.

What's the matter with this? I don't get it, it seems a no-brainer to me.

UPDATE: In case this post wasn't clear, i was talking about social security taxes. And I spoke to someone in the know who said that although it's a good idea, the amount of money provided every week would be too low to be genuinely stimulative. It's better (in a psychological impact sense) to send someone a check for a chunk of money than it is to slowly give them small bits of their paycheck back.  

Comments

[malachy walsh]

Absolutely.

[Scott Walters]

Isaac -- isn't this the cap for Social Security taxes, not income taxes? That would certainly help Soc Sec's solvency.

Here's a really radical idea: cap the amount that anyone can inherit at, say, $500,000. Everything else goes to the government. Why should someone benefit from the work of their parents? It's like joining the Monopoly game having inherited hotels on all the major streets, and then insisting that it is a fair game. Create a level playing field, and perhaps we might move closer to a meritocracy -- and avoid having to put up with the likes of Paris Hilton.

What would also happen is that very rich people would, as they were getting ready to die, spend all kinds of money -- thus boosting the economy.

Alternately, go back to the Roosevelt income tax code of the Depression era: the top 1% of the earners have a tax rate of 94%. Yes, you read that right: 94% is what it was. And today, the rich bitch about 31%. Pathetic.