As everybody knows, Pres. Obama unveiled a $350 billion mini-stimulus package last week, one consisting of accelerated investment write-offs, a permanent tax credit for R&D and another round of infrastructure spending. We hope (but doubt) he can convince Congress to go along: With unemployment seemingly stuck above 9 percent, the likely benefits of increasing demand far outweighs the risks associated with a bigger national debt down the road.
At the same time, we’re sorry that the president chose to drop the idea of a payroll tax “holiday” – the suspension of the 15.3 percent federal tax on paychecks that’s divided equally between employers and employees. Consider the advantages:
- Unlike government spending for, say, bridge repairs or high-speed passenger trains, the cash would be available almost instantly. All it would take is the go-ahead from Congress for employers to eliminate the payroll deductions and to send less money to Uncle Sam in their quarterly payments to the tax man.
- Most of us would (uneasily) agree that nobody knows better how to spend stimulus money on Joe and Joan MainStreet’s behalf than Joe and Joan MainStreet. This may sound like a variant on the Republicans’ anti-tax mantra about how “it’s your money,” and not Uncle Sam’s. But you don’t need to despise government to worry that a lot of stimulus cash funneled through lobbies and politicians is wasted on low-return projects.
- Proposing a payroll tax holiday would have put Republicans who claimed to favor a payroll tax cut in an awkward position to oppose the tax break as a matter of partisanship-as-usual.
- The 15.3 percent payroll tax creates a wedge between the cost of labor and take-home pay. Economists take this one more seriously than ordinary humans. But it’s the real deal: that extra buck an hour or so an hour collected from employers for minimum wage workers can make the difference in, say, whether the local Taco Bell franchise decides to hire an extra burrito flipper for the late-night shift. From this perspective, these taxes on labor were never a good way to cover the government’s costs. And even a year’s holiday would be worthwhile.