More and more people are talking up a reduction of, or moratorium on, the payroll tax as a way to jump-start the economy.
As President Barack Obama has said, there is no silver bullet out there. But this is an action that might help a lot of people.
Both parties ought to look at it.
Suspend the payroll tax and you put money in people’s pockets.
Right now.
TARP, the stimulus, and health-care reform will help the much-sought-after and much-pitied middle class. But those things are mid- to long-range reforms.
This would be immediate.
Immediate relief.
There is a cost: more indebtedness, and this time we are seriously borrowing from Social Security and Medicare.
But debt seems to be the order of the day now. We cannot really tackle the deficit or the debt until we begin to emerge from the recession. And though many talk a good game, most of us don’t want to tackle the deficit yet — not if it means more taxes at our house.
Deferring the payroll tax for a year, or even two, makes more sense than more tax cuts for millionaires, or even targeted tax cuts for small business.
The biggest burden on small business, next to health care (which burden they are shedding and from which they will be increasingly relieved) is the payroll tax.
Prominent economist Nouriel Roubini, co-founder and chairman of Roubini Global Economics, argues for a reduction in the tax in a recent essay in the Washington Post (reprinted in the Journal Inquirer on Sept. 20), saying a two-year reduction in the tax, whose burden is shared by employers and employees, would stimulate both hiring and consumer spending — from dinners out, to clothing, to Christmas shopping and cars.
He adds that allowing the Bush tax cuts for the wealthy to expire would fully pay for this program.
Here’s Roubini:
“Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward …
“ … The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment, and offshore offices that allow them to produce the same amount of goods with less — and lower labor costs.
“To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor — achieving job creation rather than making it cheaper to buy capital, as investment and other tax credits would do.”
In The Wall Street Journal recently, Republican Gov. Mitch Daniels of Indiana also supported payroll tax cuts. The details of his plan are different: He proposes a one-year reduction, paid for by a host of cuts to government spending. But his basic idea is the same — the government should be fighting unemployment directly.
OK.
So there is no magic bullet.
But, investing in capital and public infrastructure is too slow.
We must address unemployment head-on. Invest in labor. Put money in people’s pockets.
It’s time to try something different, and this is a common-sense idea backed by basic economics. Reasonable Democrats and Republicans ought to be able to agree on this approach.
As for the solvency of Social Security and Medicare: We have borrowed from those funds for years. There has never been a “lockbox.” In return there is no reason the general fund cannot support those programs when their balances are low. At least we can be sure the pressure will always be there to repay these much-loved programs what is owed them. No government will stiff Social Security.
The long-term funding problems of Social Security are easily solved in any case, and not by making people work another three to five years. Simply means-test it.
Warren Buffett doesn’t need his Social Security check. A disabled vet does.
The economy needs a big jolt right now and a reduction or a hold on the payroll tax may be the means. It would put money in circulation quickly and provide a big psychological boost. That would be good politics and good public policy. The country would have something to celebrate instead of more bad news to feed unfocused rage.
Keith C. Burris is editorial page editor of the Journal Inquirer in Manchester.
