Tuesday, December 2, 2008
Print Money and Cut the Payroll Tax
Excellent article by John Makin of the American Enterprise Institute. (Those guys love tax cuts, but this idea happens to be a good one!)
"The best available fiscal policy measure would be a sharp reduction in the payroll tax, which would boost household disposable income while giving firms an incentive to retain more workers on their payrolls. Total annual collections from households and firms of payroll tax levies total about $625 billion, about 7 percent of disposable personal income..."
"The payroll tax is a poorly designed fiscal measure because it acts as a tax on employing labor and, in times of falling demand, a tax on retaining labor. The payroll tax is the primary tax paid by more than 60 percent of American households and so constitutes a marginal disincentive to further work."
"If the payroll tax (of which households pay half directly) were suspended--say, for a year or eighteen months--households would experience an immediate 3.5 percent increase in disposable income that they could employ to sustain consumption and pay down debts. Since the payroll tax is regressive, falling more heavily on lower income households, its repeal would be progressive, while transferring a substantial increase in disposable income to the low-income households who are likely to need it most and therefore likely to spend most of it."
Read entire article here.