Is a Payroll Tax Holiday a Good Idea?

That's the question of the day, now that a new article in the Washington Post indicates that the government is considering a package of business tax breaks to stimulate jobs ahead of the mid-terms, including a payroll tax holiday.


Thoughts:

1)  Practically, this isn't going to do anything before the mid-terms.  These sorts of changes take time to roll out, and there's no way they could get anything into effect soon enough to make an actual difference in peoples' lives.

2)  Whether you think this works as a campaign tactic depends on whether you think people will think that it is going to work.  On that question, I have no idea.  People do love cash in their pockets, however.

3)  Politically, this has one major drawback:  it's going to put huge holes in the Social Security and Medicare trust funds.  Since I think those trust funds are meaningless accounting devices, I don't think this has any practical relevance.  But as you will be able to see in my comment section about twenty minutes after I hit "post," people have a very deep emotional attachment to the idea of the trust funds, which politicians cannot easily trifle with.

4)  Practically, I think the actual impact will be minimal, at least on employment.  It might help people and companies to rebuild their balance sheets (or let struggling companies ride things out a while longer).  But the main constraint on business hiring is uncertainty, and a payroll tax isn't going to change that.  Obviously, some workers will get hired at the margin--but if your labor is so marginal that you need a payroll tax holiday to make it economical, then I'd expect that as soon as the payroll tax holiday is over, you'll probably be fired.  Hence, even if you get the job, you're going to want to save as much of your wages as possible, blunting the multiplier effect we hope to get out of stimulus.
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In