Capital Commerce

Gregory Mankiw: My Tax Cut Idea

December 14, 2008 RSS Feed Print

A tax-cut two step from Greg Mankiw:

How about an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax? Make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

« Previous Post Next Post »

Reader Comments Read all comments (3)

Add Your Thoughts Comment Name State Email

Please enter the two words below into the text field underneath the image.

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.

What link is there between these two taxes, other than that both are regressive?
To me the most interesting part of this is the admission that there is no Social Security trust fund--that the payroll tax is just a regressive income tax with no relation to the welfare program for the elderly. Implicit in this is the admission that Social Security, as currently formulated, does not guarantee a benefit, since the benefit is simply a matter of law and nothing that is "owed" based on payroll contributions. The reason privatization was opposed was because Democrats want Social Security to be risky, with benefits dependent on appeasing them with grants of power. Privatization makes benefits into a property right.
It is also somewhat interesting that Mankiw seemingly thinks that those who own oil reserves are uninterested in maximizing the present value of their holdings by increasing prices enough to encourage enough conservation that they can sell their oil later during a period of greater scarcity. That is, the purpose of the tax is to encourage greater conservation so that we will be able to maximize the value of the resource to society. Seemingly, he thinks that oil producers are too altruistic, and are trying to sell oil cheaper than the price that would maximize its present value.
I don't see why this plan would create jobs. That seems to be an example of Say's broken window fallacy. Certainly the plan would create hardship, and people would be put to work trying to reduce the harmful effects of the plan, but there is no limit, other than the availability of resources, on the quantity of goods and services a society would consume, so these jobs would necessarily come at the cost of solving other problems. There are always more problems to solve, so there is no limit to the number of jobs that are available, but by shifting the market away from the optimum use of resources there would necessarily be a decrease in the benefit of having a job. If that benefit were decreased to be less than the minimum wage, the result would be more unemployment.

Mazzula of VA 1:18PM December 15, 2008

Cut the payroll tax, yes.
But increase the gas tax. Slowly, sure. But what we have seen from driving patterns over the last year is that the *only* way to cut our fossil fuel use in any meaningful manner is to increase the price of gas.
There's a secondary benefit as well. This *will* spur massive development in alternative energies, a field in which the US would benefit tremendously from leading. Alternative energy is the next automotive industry, or the next semiconductor industry, or the next internet industry.
By leading here we benefit economically, and start to regain our footing in the international community as a responsible citizen.

Fred Flanigan of OR 3:05PM December 14, 2008

Tax increases always seem like a good idea when their going to fall on someone else. Someone poorer without your political connections. Like folks in all the small towns across flyover country where the only option for work is to drive 20-40 miles one way.
I propose that we eliminate all taxes and replace them with a 100% tax on the possessions and income of ivory tower economists who want to steal from others to finance their pipe dreams.

Tom Hanna of MO 11:45AM December 14, 2008

Gregory Mankiw: My Tax Cut Idea

Reader Comments Read all comments (3)

Capital Commerce

Subscribe

Editor's Picks