My former GMU student Michelle Muccio was interviewed yesterday by CBS News's Bob Schieffer on "Washington Unplugged." The topic? Michelle's idea of suspending the payroll tax, as an alternative to the Obama scheme, to "stimulate" the economy .
Bob Schieffer's question about the solvency of the Social Security system is a good one. But if Uncle Sam is going to go another trillion dollars or so into debt (on the pretense of "stimulating" the economy), whether he does so by borrowing this $trillion in order to increase his spending by that amount, or by eliminating roughly a trillion dollars of payroll taxes for a year while keeping his spending unchanged, makes no difference on the solvency front. Either way, the federal government incurs debt of another $trillion or so.
If ordinary Americans truly are struggling to pinch pennies these days, there should be little worry, even for a Keynesian, that the extra money workers get from a suspension of their payroll taxes won't be spent. However, if you're a politician, the ways private citizens will spend these monies are not under your control — a fact that renders the political class terribly allergic to Michelle's plan.