The payroll tax holiday is a bad bipartisan idea

Article Highlights

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

    Tweet This

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

    Tweet This

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

    Tweet This

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.

Read more on American.com

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex
Brill

What's new on AEI

We still don't know how many people Obamacare enrolled
image The war on invisible poverty
image Cutting fat from the budget
image Speaker of the House John Boehner on resetting America’s economic foundation
AEI on Facebook
Events Calendar
  • 22
    MON
  • 23
    TUE
  • 24
    WED
  • 25
    THU
  • 26
    FRI
Monday, September 22, 2014 | 2:30 p.m. – 4:00 p.m.
Policy implications of the new US labor market normal

We welcome you to join us as a panel of economists discuss US wage and price prospects in the coming months and the implications for the Federal Reserve’s current unorthodox monetary policy.

No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.