Payroll tax cuts now!

Support appears to be growing (finally!) for a payroll tax cut.  Here’s Edmund Phelps

“It’s beautiful if it can be timed at a dire moment like this, when unemployment is way too high and appears to be going somewhat higher,” said Mr. Phelps, an economics professor at Columbia, lamenting that the president dropped it from the $787 billion stimulus plan approved in February. “But it’s a pity that this wasn’t done a year ago.”

I argued in favor of a payroll tax cut (and other supply side stimulus ideas) earlier this year so I am in agreement that this is late but still warranted.  Other economists in favor of a payroll tax cut include Keynes, Tyler (in his usual manner), Arnold Kling, Greg Mankiw, Russ Roberts, Robert Reich and Dani Rodrik.  The list could easily be extended and it easily crosses political boundaries.  Lee Ohanian is quoted in a negative manner arguing:

“Particularly for big employers, if they think a job creation tax credit is in the offing, it could certainly be an incentive to delay hiring,” said Lee E. Ohanian, an economics professor at the University of California, Los Angeles. “That means it could have the perverse effect of actually prolonging the recession.”

But if you think that the potential for a future tax cut can delay employment today that is another way of saying that an actual tax cut would greatly increase employment today so I count Ohanian in favor if it can be done now.