The payroll tax holiday is a bad bipartisan idea

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  • Congress is getting in the holiday spirit, and top on their gift list for workers is extending Obama’s payroll tax holiday

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  • Bipartisan support for extending the payroll tax doesn’t mean it will be easy to pass.

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  • Bipartisan support for the tax holiday doesn’t make it good economic policy.

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Congress is getting in the holiday spirit, and top on their gift list for American workers is extending President Obama’s payroll tax holiday, set to expire at the end of the year. But, as is the case with many gift ideas, this one sounds better than it is in real life.

"Bipartisan support for the tax holiday doesn’t make it good economic policy." --Alex BrillThe bipartisan support we’ve seen for extending the policy doesn’t mean it will be easy to pass, considering the disagreements on if and how to offset its impact on the deficit. But more importantly, bipartisan support for the tax holiday doesn’t make it good economic policy.

The economic argument in favor of a payroll tax holiday is that putting more dollars in workers’ hands will make them spend more, driving up demand for goods and services and ultimately causing the economy to grow. Extending the holiday would likely benefit 160 million workers, totaling about $1,500 per family. This is estimated to add over $250 billion to the deficit. Is it worth it? A review of related academic literature suggests not. In fact, it appears that politics, rather than sound economic evidence, is the motivating factor.

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