Payroll Tax Holiday Debate

Tax Preparation


The economic impact of the payroll tax cut is anything but certain. Here are excerpts from a few select economists:

David Kautter, managing director of the Kogod Tax Center at American University, says the measure is needed to boost demand: “I think that the economy is so fragile and the recovery is so weak that if the payroll tax [holiday] is allowed to expire, you’d end up reducing money in consumer’s pockets and that would end up reducing demand.”

Andrew Biggs of the American Enterprise Institute doubts whether the cut would have much impact at all: “People don’t generally respond well to temporary tax cuts so it’s unlikely you’re going to see a strong economic response. This isn’t really a left-right issue, it’s just a question of how big an effect you think it’ll have and whether the stimulative effect is worth the cost. My guess is that it isn’t."

Russell Price, senior economist for Ameriprise Financial Services says cutting payroll taxes would help create new jobs:  additional spending capacity “should continue to foster improvements in aggregate domestic demand. And ultimately, it is demand and demand alone that will lead to more business hiring,”

But Jeff Joerres, CEO of ManpowerGroup, cautions that “we should be realistic about what it actually can do.  When it comes down to it, the only way to create massive amounts of hiring is sustainable demand for products and services.  This is not going to create that.”

The pre-holiday chaos over the payroll tax extension is seen by some as “confirming the widespread sense of dysfunction that has become the dominant theme of this Congress.” Looked at another way, however, the latest round of dissent over extending the payroll tax – like the lack of consensus among economists – is symbolic of the sharply divergent views over what policies are needed to generate economic growth – a partisan divide that won’t be settled until November 2012 at the earliest.

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