Looking for the treasure room in the castle

The “Real Time Economics” WSJ blog on December 4th has a post on the impact of the Social Security tax holiday. [The JEC is the Joint Economic Committee]

The JEC report notes the effect the cut has had on consumers’ pockets and says it boosts the Social Security Trust Fund. As part of its initial design, the reduced revenue earmarked for Social Security was recovered by transfers from the Treasury General Fund. That increases the debt, but keeps the Social Security Trust Fund at the same level it would be without the cut. Meanwhile, the JEC cites an estimate from Macroeconomic Advisers that the economic growth spurred by the tax cut led to saving or creating 400,000 jobs. The workers in those positions, which wouldn’t exist otherwise, pay into the Social Security Trust Fund making the total higher than it would be without the lower tax rate.

So my question is, if a 2% “temporary” tax break on working people creates or saves 400,000 jobs, why doesn’t a tax increase of equal or greater amount cause a loss of jobs, especially if that increase is on the people with the most discretionary spending power?

Is it possible we could eliminate the payroll tax altogether, create a million more jobs and solve the Social Security Trust shortfall at the same time. After all, we are told that Social Security has nothing to do with the deficit, so where is the harm?

It is hard to comprehend how what amounts to about $19.00 a week in extra income for the average household stimulated spending to create 400,000 jobs. The people I have mentioned the possible elimination of the 2% cut to were not even aware their pay was higher, it has just disappeared into the routine spending of their daily lives.

In some quarters the math seems to work like this. If you raise taxes on average people the economy is hurt, if you raise taxes on the “wealthy” it is not and conversely if you lower taxes in one case you create jobs and the other you don’t.

It seems to me this tax theory works only if the wealthy don’t spend or save changes in their net income but rather merely add or subtract from the contents of the treasure room in their castles thereby causing neutrality on the economy.