Lawrence Lindsey on Payroll Tax Stimulus and Recourse Mortgages

Former Fed governor and Bush economic adviser Lawrence Lindsey has been on a campaign this week to discuss a topic seldom heard about in stimulus discussions: payroll tax cuts for both employees and employers. Below is what he said in a WSJ op ed last week. The whole piece is worth a read, and for those that prefer to listen, see the video—Lindsey was on The Daily Show tonight discussing this proposal as well as recourse mortgages.

To understand the mortgage discussion in the video note that the US is the only developed nation with non-recourse mortgages, meaning that a borrower can walk away from a property, and have no responsibility beyond a derogatory credit report rating. Recourse mortgages mean you’re tied to the debt whether you stay in the home or walk. This is what Lindsey is talking about. It’s unclear whether he’s proposing a shift from a non-recourse to a recourse model entirely. But it seems like he’s saying that both could exist with better rates and terms given to recourse mortgages. Makes sense.

LINDSEY ON PAYROLL TAX CUTS

For a similar amount of money [as current proposed stimulus], the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.

 
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