Should We Celebrate This Payroll Tax Holiday Idea?

Congress has lost its appetite for spending, so what kind of stimulus could the White House get behind? Try a payroll tax holiday. Literally, holiday. Voting would happen during the lame duck session, between Thanksgiving and Christmukkah. The Atlantic's own Marc Ambinder has the goods:

A strange thought-fellow coalition has an idea: a payroll tax holiday. Different groups have different forms of the proposal: some of them would exempt different amounts of income from the Social Security tax, which is 6.2% on a worker's first $106,800 of income; some would go into effect immediately and last for a year, and others, for just six months. It would be stimulative, easy to implement, popular and would encourage job creation...

Some economists doubt the multiplier effect from a payroll tax holiday would be significant; it would certainly be less so than straight stimulus, but Congress won't consider another "stimulus package" of appreciable size anytime soon. The liberal Center for Politics and Budget Priorities calculates that most of the money would be saved, not spent, and the tax holiday appears more progressive than it actually is. Robert Reich, the Clinton labor secretary, envisions a break for the first $20,000 in income, helping poorer workers and potential employers alike. (Here's an argument that it will help workers but not employers.)
Two observations. First, we already have a payroll tax holiday, of sorts. Under the HIRE Act, employers don't have to pay payroll taxes on new hires this year, provided that the workers have been unemployed for more than 60 days. I don't know how well that program is working, but private sector hiring certainly looks anemic.

Second, let's think through Reich's idea. Neither employees nor employers would pay payroll taxes on the $20,000 in income. That keeps things progressive, since lower-income workers get a tax break on a larger share of their income. But what do we think will happen to that money when it's rebated to (or kept by) the employer? Might he sit on it, like nonfinancial companies are sitting on $1.8 trillion in cash today? He might. And how about the employee: might she save it or use it to pay down her debt, as Americans have done with much of the Making Work Pay tax break in the Recovery Act? She might.

That's not a death-blow to the idea. I think a payroll tax holiday worth considering. I'm just raising doubts that it's a cinch to jump start the economy.