What do one of our world's wealthiest men, Warren Buffett, and one of America's prominent liberal economists, James Galbraith, have in common?...they both pointedly endorse a certain kind of very progressive tax cut -- a "payroll" tax holiday.
The FICA (payroll) tax is regressive by nature as it taxes only up to a certain level of income, allowing income over $102,000/yr to go FICA-tax-free.
The FICA tax does not apply to capital gains or dividends! (!) Wealthy and living off investments? You pay no FICA taxes on those.
This means the richer you are, the lower your FICA tax rate is.
But the poorest workers, on the lowest wages, pay the full FICA tax all the way.
The reason a payroll tax holiday is especially stimulative is because this tax cut goes primarily to lower income households, who by nature must spend more of their tax cut just to get by.
A FICA tax holiday would also help small business owners and individuals working for themselves.
Again, these are people who need the money especially now, and who will spend it soon.
For instance, it's estimated that the multiplier of a payroll tax cut is very nearly as high as the multiplier of federal aid to state budgets which save state jobs as state revenues fall.
How long should a FICA tax holiday last?
Until the economy recovers strongly.