Some conservatives have been touting a payroll tax holiday as an alternative to the Democrats’ fiscal stimulus plan. Suspending the payroll tax for 2009 would increase workers’ disposable incomes while reducing a tax on hiring and retaining workers for employers. It would be a progressive tax cut. Any payroll tax relief is politically vulnerable to complaints about diverting revenue from Social Security, like personal accounts except without any compensating effort to deal with the long-term unfunded liabilities of the system, but both the payroll tax and the Social Security/Medicare trust funds are accounting fictions.

This would be preferable to Obama’s massive new spending on projects of varying degrees of merit. But it would likely increase government borrowing and might otherwise fall into the stimulus trap noted by economist Tyler Cowen:

The biggest problem with a fiscal stimulus is this: our economic problems stem from having spent too much in the first place. Now that our homes are no longer rising in value every year and America is aging, more saving is in order, not more spending. Recovery will come only when we discover which new and valuable things the economy should produce as it shifts out of real estate and finance. Simply borrowing and doling out more cash doesn’t solve that problem.

A payroll tax holiday is a politically attractive alternative to a warmed-over New Deal, and in many ways an economically attractive one too. But the borrow-and-spend holiday from history needs to end too.