Might we get a cut in the payroll tax? (Department of !)

by on September 2, 2010 at 5:30 pm in Current Affairs, Economics | Permalink

The Washington Post reports:

President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses – potentially worth hundreds of billions of dollars, according to two people familiar with the talks.

Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit…

foosion September 2, 2010 at 5:39 pm

I’m waiting to see the Republicans oppose a payroll tax cut (the deficit will kill us) while supporting extending the Bush tax cuts (let people keep their money). They managed to oppose a small business tax cut already.

CJS September 2, 2010 at 6:47 pm

If it’s a business-tax credit, I assume it’s a cut to the employer’s portion of the payroll taxes, right?

Craig September 2, 2010 at 8:39 pm

A payroll tax cut — especially one that’s time-limited — will be surprisingly ineffective to people who don’t understand that all tax cuts do not produce the same effects. Payroll tax cuts make it marginally cheaper to bring on another employee (for a while), but do nothing to improve the prospects of the business going forward.

If Republicans oppose it, they’ll be right. Albeit by accident.

jorod September 2, 2010 at 11:04 pm

Need spending cuts….

Josh September 2, 2010 at 11:51 pm

It’s fun to call a tax cut a stimulus and let the politicians loose with their rhetoric.

But in this sense it really would be a deficit-causing “stimulus” and not just a “tax cut,” because in a non-deficit worldview taxes needed would be equivalent to revenues needed for the government, and the government would not be cutting these taxes because they needed less revenue….

gbolaria September 3, 2010 at 1:48 am

I am a little young, but I do feel like I have something to say. For the past couple of years, I have seen America’s economy slowly plummet with very little way to save it. Obama has done the best he can, but people need to realize he inherited a very big mess. His first stimulus package, though Americans think it did little, actually saved many jobs. With that being said, I do support a payroll tax cut. What needs to be done must be done, and this seems to be something that needs to be done.

bil. September 3, 2010 at 7:32 am

Does any other country do this? That might be interesting to know.

Posted by: Bill at Sep 2, 2010 7:17:50 PM

Singapore does something similar, and it works; though of course as a standing program it is much more effective than our ad-hoc temporary tax cuts (which are a better form of ‘government spending stimulus’ than discretionary government spending, but does miss out on the lion’s share of the positive supply-side effects):

http://econlog.econlib.org/archives/2008/01/singapore_autom.html

Angie September 3, 2010 at 10:06 am

From what I can understand, the cut in payroll tax will make it easier to hire, however will not do much for the company. Then I think this plan should be implemented because although it only helps temporarily, the government needs to do everything it can to help the people.

Dan Weber September 3, 2010 at 11:21 am

An idea I’ve been playing with is capping employment taxes for an employer. If you are paying $X now, you will only pay at most $X for the next 12 months, regardless of how many people you hire.

$X is a high-water mark. If you fire 10 people and hire 10 people, you will still be at $X, so no benefit.

mulp September 4, 2010 at 1:38 am

Why has social security always collected more than it needed to pay out (until now)?
Posted by: Andrew

Quoting Saint Ronnie when he signed the 1983 payroll tax hike:

Well, I want to extend to all of you a very warm welcome. Something ought to be warm. [Laughter] But it’s especially fitting that so many of us from so many different backgrounds–young and old, the working and the retired, Democrat and Republican–should come together for the signing of this landmark legislation.

This bill demonstrates for all time our nation’s ironclad commitment to social security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire.

And this bill assures us of one more thing that is equally important. It’s a clear and dramatic demonstration that our system can still work when men and women of good will join together to make it work.

Just a few months ago, there was legitimate alarm that social security would soon run out of money. On both sides of the political aisle, there were dark suspicions that opponents from the other party were more interested in playing politics than in solving the problem. But in the eleventh hour, a distinguished bipartisan commission appointed by House Speaker O’Neill, by Senate Majority Leader Baker, and by me began, to find a solution that could be enacted into law.

Political leaders of both parties set aside their passions and joined in that search. The result of these labors in the Commission and the Congress are now before us, ready to be signed into law, a monument to the spirit of compassion and commitment that unites us as a people.

Today, all of us can look each other square in the eye and say, “We kept our promises.” We promised that we would protect the financial integrity of social security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we’ve done that, too.
More at http://www.ssa.gov/history/reaganstmts.html

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