Unemployed people don’t pay taxes and tend to use government services, so obviously high unemployment creates a drain on the budget.
Many Democrats would like to see the deficit Super Committee’s forthcoming fiscal plan scored for its expected impact on economic growth. The idea is that if the Congressional Budget Office says the plan is a job killer, it won’t pass, and members will figure out how to make it economically neutral or better.
The Super Committee’s been cool to the idea so far, but one of its members, Rep. Chris Van Hollen (D-MD) has helpfully underscored why economic growth (or lack thereof) is such a key issue, even if all you care about are budget deficits.
“I asked CBO to estimate the size of the deficit if the economy were at full employment, and CBO’s response confirms that our weak economy is the major contributing factor, accounting for over one third of the projected deficit for fiscal year 2012,” Van Hollen said in a statement last night. “It’s clear that the fastest and most effective ways to reduce the short term deficit is to put Americans back to work.”
Here’s what Van Hollen needs to ask the CBO. If the government payed the wages for all the unemployed, how much less than a third of the budget deficit would be eradicated? In other words, if the government created the jobs that private industry is not creating, how much better off would we be?
Just ask the question and get the data. I know that John Boehner isn’t going to listen, but the rest of us are interested.
Of course the Republicans don’t really care about the deficit, they want to defund social programs. They’ve already voted repeatedly against bills that the CBO says will cut the deficit. They’ve voted for bills that the CBO will raise the deficit. Having more people working and paying taxes works against their objectives.
If We the People decide that something must be done, and the private sector cannot or will not do it, then the government must do it.
John Boehner won’t agree because he’s about drowning the government in a bathtub. (Except for his own salary and benefits and perks.)
Certainly that’s a better idea than all the tax cut trickle down crap that we’ve been hearing for 11 years.
We might start with having critical military electronic components being made in the USA instead of China.
Maybe someone in this country still knows how to build and run a semiconductor fab. If not, we could hire AMD people from Germany.
Am I missing something, Boo? You want to know if the deficit would improve if we pay all the unemployed, let’s say an average of $40K, and we collect a fraction of that in taxes?
There’d be all sorts of benefits, but reducing the deficit wouldn’t be one.
No, that’s not exactly what I’m asking. If we had full employment the deficit would be cut by a third. However, we can’t magically create full private sector employment. What I want to know is what would be the budget savings, if any, if the government was employing people so that we have full employment?
Now, consider that it’s more complicated than you’ve painted it.
Much of the work could replace contractor work, which is more expensive. An employed worker isn’t getting unemployment insurance, they’re less likely to get food stamps or welfare. They might not need Medicaid. And they pay at least some of their money back to the government, in payroll taxes if nothing else.
Yes, it costs the government money to employ people. But it costs a lot less than you might think. And the idea is that doing this for a short time would revitalized demand in the private sector leading to economic growth, which is where it could potentially pay for itself.
These are all replacements for wages. They’re the safety net that allows the unemployed or underemployed to maintain a minimum standard of living.
Of course it would be entirely feasible for the government to provide employment wages and benefits in place of social progams, at least for those who are able to work. The WPA did something very similar.
But if the government stops giving wage replacement benefits to a person and gives that same person a employment wages and benefits instead, then deducts a portion of that salary as taxes, there’s no way the government ends up with a net reduction in cost.
Not through that transaction. That’s true. But by creating demand in the private sector, you create economic growth, which is where it may pay for itself.
Jeepers!! Don’t you understand economics at all? If I am jobless and the government gives me a job, guess what? I now can go out and rent an apartment(hopefully!). I can now, hopefully, go out an buy an iPhone and iPad. I can now, hopefully, go out to dinner two or three times a month. Get it now?
If I am jobless and the government gives me a job, guess what? I now can go out and rent an apartment(hopefully!). I can now, hopefully, go out an buy an iPhone and iPad. I can now, hopefully, go out to dinner two or three times a month. Get it now?
I get it now, and I got it before. BooMan is asking about the budgetary impact.
What is proposed here is the flip side of the conservative’s Laffer Curve argument–that tax cuts pay for themselves! Substitute spending increase for tax cut and we have the argument proposed here today.
It depends on whether you are talking about make work jobs like digging holes and then filling them in or real productive jobs. Actual production for sale would be Socialism, so there’s no use in talking about it because most idiots would rather starve or freeze than be Socialists. That’s why I proposed that the government produce goods for its own consumption which is what the military mostly did prior to WWII.
You have a fundamental misunderstanding of what money is. Money is currency (from the Latin currens, from currere “to run”, aka current ). Money moves. It’s a fluid. Hire the unemployed and you’re not only getting useful services provided (by employing teachers, policemen, doctors, scientists, construction workers etc.), you’re also getting money to move. So the government pays “Joe” to build a bridge, he uses that money to pay his mortgage, buy food, gas, clothing. This puts money into the local shops, who can hire more workers, who also pay taxes, and spend money, etc. The bridge he’s building aids commerce as physical goods can move more easily.
Government tax receipts are less on the money a specific individual earns and more on the movement of currency through the system. They get a little bit back from Joe, but he only pays taxes on a dollar he earns once. As long as the money is moving that same dollar generates tax revenue every time it changes hands. So the coffee shop he spends it at pays taxes on it. The employee that’s paid with it pays taxes again. The gas station she gives it to when filling her tank pays again … etc, etc, etc. This is why it’s a real problem that profitable businesses are sitting on their money. If the money doesn’t move, it clogs the system.
Over half a million government workers in the U.S. lost their jobs over the last few years. The money they were spending is now frozen out of the system. And as Booman points out, the government still has to pay for services for those people.
You make an assertion here based on insufficient evidence.
Since you have such a profound understanding of “what money is,” perhaps you can describe the point at which a dollar spent generates more than a dollar in returned tax revenue. What you’re describing is essentially financial perpetual motion. Government spending can have many positive, stimulative effects, but it can’t create revenue out of thin air.
My evidence is right here
You’re writing as though hiring federal employees is an act of charity, that there is no net benefit to having cops on the street, that those streets be paved, that children are educated. If it were true that you could never do better than collect a fraction of what you spend on employees then nobody, private or public, would ever hire anyone.
You’re writing as though hiring federal employees is an act of charity
No, I’m not. I’m accepting the premise laid out in the original post. If you hire people to do work, you give them money. No charity.
that there is no net benefit to having cops on the street, that those streets be paved, that children are educated
That wasn’t the question BooMan posed. He asked about the budgetary impact. Having a cop on the street has an indirect effect (more cops, less crime, etc.), but it doesn’t materially affect tax collections.
Yes it does. Having a cop on the street can be the difference between whether a business opens up in that location or moves to a safer neighborhood. Investing in education also determines whether and which businesses will locate in a community. Own a restaurant across from a fire department that was just shut down – likely to be a problem for your bottom line. We’ve already seen communities that tore up the blacktop to save money in maintenance. Do you think that might materially affect the amount of taxes they’re collecting from local businesses?
How the government chooses to spend money absolutely has a material affect on tax collections. Adding an additional 500,000 people to the unemployment roles during the worst downturn in 80 years made the situation worse.
Look folks. Here’s BooMan’s proposition:
Now if you want to point to the stimulative effect of spending, be my guest. The question on the table is, what’s the impact on the budget deficit?
Assume “full employment” means a jobless rate of any number you choose. Set the average salary at any number you like. Pick any plausible value for the velocity of money. You won’t get a reduction in the federal budget deficit. The outlays will exceed the returned tax revenues.
“Full employment” would bring a halt to the foreclosure crisis which has affected the value of real estate around the world. Communities that have been deserted would be full. Houses would not stand empty, serving as a target for criminal activity.
You continue to be wrong in your assumption. We’re in a major depression right now. Bringing the country back to “full employment” would completely alter the course of the economy, whether it was done with federal money or private money. And that would close a big hole in the budget deficit.
You continue to be wrong in your assumption.
You continue to make unwarranted, summary assertions.
This country is not in “a major depression” or even a recession at this point. The economy is not growing rapidly, but it is growing.
If full employment is achieved through the government paying a salary to everyone who is currently unemployed (as BooMan conjectures) that’s a massive outlay of cash. There simply is no circumstance in which that outlay is matched by the increased tax revenue that might result.
If the suggestion was practical, it implies that the government could spend endlessly and receive an infinite amount of revenue.