...against fictions and other tall tales

Thursday, 16 May 2013

Impact of the US Payroll tax cut...and tax hike

This is a very informative (and short) piece by economists at the NY Fed on the effect of the 2011 US payroll tax cut and its recent expiration.

Here's a good summary:
Overall, our analysis suggests that the payroll tax cut during 2011-12 led to a substantial increase in consumer spending and facilitated the consumer deleveraging process. Based on consumers’ responses to our recent survey, expiration of the tax cuts is likely to lead to a substantial reduction in spending as well as contribute to a slowdown or possibly a reversal in the paydown of consumer debt. These effects are also likely to be heterogeneous, with groups that are more credit and liquidity constrained more likely to be adversely affected. Such nuances may be lost in the aggregate macroeconomic statistics, but they’re important for policymakers to consider as they debate fiscal policy.
Reference

Zafar, B., van der Klaauw, W., My Two (Per)cents: How are American Workers dealing with the Payroll Tax Hike, Federal Bank of New Work, Liberty Street Blog.

2 comments:

  1. !!! you have the remarkable talent of identifying the key insights of some of the best economic thinkers, particularly our last generation's (that's more than Better for me), that are most pertinent to current fiscal and monetary conditions and most apt to affect them favorably. Unfortunately, the dilemma of economic policymakers these days is that there is a reluctance on the part of the private sector to contribute more substantially to labor market improvements and more general sustainable economic growth and growth in real income. There are many such great 'mismatches' in the economy. In my opinion, recent indications of improvement in labor markets will be short lived; and the general mode of economic weakness will extend into the latter portions of the decade. We're in for a bad squall, as one of your readers, has suggested. There are great headwinds that are, to some extent, beyond the legal parameters of the Fed. One should thank heaven for Chair Bernanke because Congress is somewhat fruitless.

    Blinder has been highlighting some brilliant and flexible ideas recently that deserve greater circulation than the media has offered.

    Stay the course, circuit. Well done!!

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  2. Thanks GC! I'm glad you appreciate these posts. I think there's lots of good economics to be uncovered. There's more to come shortly.

    In regard to Ben Bernanke, I agree and am quite impressed by some of the commentary he's given lately. His speech on creating resilient communities back in April provided an excellent synopsis on the state of research in the field. Also, I was really glad to read his latest speech on 'Economic prospect for the long run'(!). I intended to comment on this debate at some point. I'll just say for now that Robert Gordon raises some very persuasive points. That said, Martin Baily et al present a good case as well.

    BTW, Governor Raskin gave a good rundown of the economic prospects of the recovery last week. http://www.federalreserve.gov/newsevents/speech/raskin20130516a.htm

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