From Charles Krauthammer’s The GOP’s payroll tax debacle in The Washington Post:
A two-month extension is nothing more than a long tax weekend. What employer is going to alter his hiring decisions — whose effects last years — in anticipation of a one-year tax holiday, let alone two months?
Does Krauthammer actually think that any reasonable person would argue that employers (now “job creators” in political jargon) are going to hire more employees because the employees’ share of payroll taxes has been reduced by 2%? It’s a nonsensical idea from an economic perspective, and it has nothing to do with the actual rationale for the payroll tax cut.
Krauthammer is just following the lead of the Wall Street Journal editorial page, which made the same assertion in this week’s The GOP’s Payroll Tax Fiasco:
House Republicans yesterday voted down the Senate’s two-month extension of the two-percentage-point payroll tax holiday to 4.2% from 6.2%. They say the short extension makes no economic sense, but then neither does a one-year extension. No employer is going to hire a worker based on such a small and temporary decrease in employment costs, as this year’s tax holiday has demonstrated. The entire exercise is political, but Republicans have thoroughly botched the politics.
Does the WSJ even know what it’s talking about? Do they have the issue completely muddled in their own heads, or is this some sort of cynical attempt to divert discussion from the actual rationale for the payroll tax cut for workers?
Perhaps they’re confused since at one point President Obama suggested extending the payroll tax cut to employers as well?
The 2% payroll tax cut in 2011 did not create jobs directly. But after payroll employees nationwide making less than $106,000/year got the equivalent of a 2% increase in pay for an entire year, the consumer economy undoubtedly benefited. Yes, tax cuts are stimulative.
As I’ve noted before the payroll tax cut probably added about a half a percentage point to GDP in 2011. Increased GDP correlates strongly with increased jobs and with lower unemployment rates. There’s no doubt that last year’s payroll tax cut improved the nation’s economy and led to job creation.
Now, we could make all sorts of arguments against the payroll tax cut. But the arguments of Krauthammer and the WSJ editorial board suggest that they don’t even understand the basic — really basic — economics of the issue.