December 23, 2010

Policy Stasis as Economic Boost

Justin Katz

I think John Kostrzewa overstates the ability of the recent tax-cut preservation legislation to boost the economy:

... I give [President Obama] credit for crafting the compromise with the Republicans because the major pieces of the bill will create an economic stimulus that will stir job creation. It is not the same type of $800-billion stimulus approved last year that funneled taxpayers’ money into the hands of government bureaucrats who spent it inefficiently.

Rather, most of the money this time will go directly to taxpayers who will spend it on basic needs to run their households. Because two-thirds of economic activity in the U.S. economy is based on consumer spending, the money people will get to keep, rather than pay in taxes, will boost their confidence and spur growth.

The tax-cut legislation didn't really add anything to economic policy; it just prevented a massive shift in an unhealthy direction. That it's been passed will surely steady the markets' anxiety, but that just brings the needle back to zero from the red side of the dial, where it hovered only because the president and Democrats were threatening negative change.

The most significant addition to policy, that I've seen, is the Social Security payroll tax cut, which I'll certainly welcome in the short-term, but which only decreases my expectation of ever benefiting from the program in years to come. Of course, that skepticism is also the status quo; Americans of my generation and younger more accurately see Social Security and MediCare as taxes than as investments.

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Those of us who are Gen Xers and certainly those who are younger will never see a penny of social security. I have accepted that and that is why I have a Roth IRA. Gens X and Y are neither large enough in number nor financially stable enough to support the large segment of Baby Boomers currently retiring.

Posted by: Tabetha at December 23, 2010 10:17 PM
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