The Payroll Tax Holiday Debate

What to do about the looming end to President Obama’s payroll tax holiday? The Republicans and Democrats apparently don’t know.

Alan Reynolds of the Cato Institute has a real good analysis on how the tax “holiday” doesn’t benefit middle class workers to the extent President Obama and the Dems proclaim it does. He also references the tax increases Democrats are proposing to pay for extending the tax holiday.

It should be clear another short-term “stimulus” will fail to stimulate. John Taylor’s article in the Wall Street Journal explains how policy uncertainty is creating an economic environment conducive to stagnation. Policies such as 1-year temporary “holidays” add to that uncertainty.

So what to do?

I don’t have a problem cutting payroll taxes, but make it permanent, and do it both on the employee and employer side of the equation. Any cut in payroll taxes should also be part of a broader discussion on Social Security reform. Ron Paul advocates letting younger workers opt out of the system; Chris Edwards from Cato advocates letting those same workers steer that money into personal retirement accounts. Either policy is preferable to trapping workers in a government-mandated Ponzi scheme that’s proving to be a raw deal for workers.

The “tax holiday” band aids being proposed right now won’t turn the economy around. Just like they haven’t for the last 3 years.

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One Response to “The Payroll Tax Holiday Debate”

  1. Devon Bands Says:

    Thanks for that. Great information.

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