In addition to an increase in short term consumption, employers would have an incentive to take on more employment (since payroll taxes are, essentially, a tax on hiring). As is the case with every election season, neither side is showing any support for such a drastic policy change, no matter how much sense it may make.
Monday, October 4, 2010
A tax cut both parties should love -- but don't
An alternative to extending the bush-tax cuts - granting a payroll tax holiday for the upcoming year. With fears looming of a double dip recession, some economists believe a payroll tax cut (specifically on the 6.2% shelled out for social security) would be a much more effective stimulus method, as opposed to an income tax cut. The nonpartisan Congressional Budget Office estimated that eliminating payroll taxes would be roughly two to four times more effective in spurring economic activity than a reduction in income taxes. The proposition seems logical, since payroll taxes are highly regressive, increasing income for the poor and working class will call for increased consumption. Also, instead of employees waiting around for a tax refund they only have to wait on the next paycheck to reap the benefits.
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This highlights the fundamental issue with politics, no one is willing to take a stand which might garnish them opposition. I think decisions such as this should be left up to those who know the most on the topic; AKA The Fed. This also has a advantage in that The Fed doesn't have as much to lose with election season upon us, and thus wouldn't be swayed in their decision making process by this factor.
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