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The Spectacle Blog
Indiania Gov. Mitch Daniels, who has been mentioned as a possible 2012 presidential candidate, proposes an emergency one-year suspension or reduction in the payroll tax in today’s Wall Street Journal to spur job creation. It’s an idea that I also floated during the initial economic stimulus debate as an alternative to Democrats’ focus on government spending.
A reduction in the payroll tax would boost the economy in several ways. Like any reduction in taxes, it would mean that individuals would be able to keep more of their earnings, and thus have more money to inject into the economy. But the unique aspect of the payroll tax is that it’s also paid by employers — it is, in fact, a tax on employment. If you were to lower or eliminate the payroll tax for a period, it would make it effectively cheaper for businesses to hire new workers, or to at least maintain their current workers, until the economy improves. Keynesians have traditionally opposed the idea of a payroll tax cut because they believe that in a bad economy, people would save more of the additional money they’d be taking in, and so they prefer to have the government spend the money.
The federal government collected $891 billion in payroll taxes in 2009 and is projected to take in $862 billion in 2010, according to the Congressional Budget Office. That means that a full one year holiday would, in monetary terms, be something along the lines of the economic stimulus package, which cost $862 billion.
In his op-ed, Daniels proposes a number of ways to make up for the lost revenue from the payroll tax holiday. The lowest-hanging fruit would be to use unspent stimulus and TARP dollars. Though according to Pro Publica, only $134 billion in stimulus remains unspent and uncommitted, and remaining TARP money, at least in theory, is supposed to be put back in the treasury for deficit reduction.
But Danleis has a number of other creative ideas that are a bit fresher. He proposes giving the president the power to spend less that Congress appropriates, a power he has used as governor to maintain a balanced budget and AAA credit rating for the state. He suggests a federal hiring and pay freeze, or even cut, as federal pay “vastly outstrips private-sector wages…”
Congress would have had much more money to play with had it not wasted money on the failed economic stimulus to begin with, but the idea of a payroll tax holiday — or at least reduction — is still worth considering as a means to boost employment.
View all comments (8) | Leave a comment
More Blog Posts by Philip Klein
http://spectator.org/blog/2010/09/08/the-daniels-payroll-tax-holida
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Chris | 9.8.10 @ 11:38AM
I love Daniels and think he'd make a great candidate for the GOP nomingation in 2012. But he has some work to do reaching out to the grassroots nationwide who, after his coming out interview with the Weekly Standard, would seem to think that he would shy away from social issues. Mitch, embrace both the economic side and the social issues side (they are not mutually exclusive - immigration comes to mind). Creative ideas like this + your experience make you the best candidate for the standard-bearer for the GOP in 2012.
Derek Leaberry| 9.8.10 @ 1:09PM
If Daniels is elected in 2012, it should be assumed that the Republicans will enjoy massive majorities and he wouldn't need his suggestion, which is of dubious Constitutionality, of spending less than what Congress appropriates. If any Republican is elected president in 2012, massive budget cuts should be expected if they live up to their bluster as later-day budget cutters. Somehow, after their obsequious performance as George W. Bush's water boys from 2001-2008, I am not confident that a Congress led by Mitch McConnell and John Boehner can make the hard fiscal decisions the country needs desperately to make. The Republicans have no credibility at this time.
Bert Spence| 9.8.10 @ 1:34PM
I have heard good things about Daniels, but I don't see them in this WSJ piece. Temporary tax cuts are useless. I did not see any mention of cutting corporate, capital gains and estate taxes. The moratorium on regulation was temporary too. And he seemed to be trying to find a way to "pay for" the healthcare monstrosity rather than to repeal it.
I have noticed about establishment GOP types that they seem to be totally ignorant of horse-trading tactics. They always negotiate with themselves before they say anything, apparently out of fear that if they venture beyond what the liberals will accept, someone will "call them on it."
That's not the way effective leaders operate. They stake out a position well beyond what they would accept, and negotiate back to what they wanted all along.
Daniels' WSJ piece seems calculated to be acceptable to the Maine senate delegation. It is not inspiring in the least.
Smirking Weasel| 9.8.10 @ 2:38PM
A better idea would be a permanent increase in the standard deduction and exemption available to all individual taxpayers. It would increase everyones take home pay and be permanent. The
Bitch merely offers further confirmation that he's a corporatist hack and shill.
ncatty| 9.8.10 @ 2:45PM
Don't naysay this proposal. It allows us to keep and spend our own money without guidance from above. This is unacceptable to the Dems. Such distinctions must be highlighted.
Le Snelling| 9.9.10 @ 1:18AM
Here's another idea. Suspend Prevailing Wage for a minimum of 2 years. We spend astronomical amounts of money for public projects that could be significantly reduced by suspending or eliminating PW or as I choose to call it - the union subsidy.
James| 9.14.10 @ 8:56PM
I don't think these election gimmicks will work. We need permanent long term tax relief.
People consume according to how they view their permanent long term earnings prospects, not according to temporary swings in income, and will save the cuts, because they know there will be a future increase.
Tax cut must be permanent and the right kind to work.