White House Preparing for a Payroll Tax Holiday?

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Thursday, September 02, 2010 at 6:35 pm

At The Washington Post, Lori Montgomery has details on a possible White House stimulus plan comprised entirely of tax cuts:

Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks who spoke on the condition of anonymity in order to describe private deliberations. Permanently extending the research credit would cost roughly $100 billion over the next decade, tax experts said. And depending on its form and duration, a payroll tax holiday could let businesses keep more than $300 billion they would otherwise owe the Treasury.

While significantly less than last year’s $814 billion stimulus package, both ideas would be far more dramatic than anything the White House had been expected to propose.

Economists argue that spending increases tend to be more effective than tax cuts in stimulating the economy. But, the Congressional Budget Office examined (PDF) the effectiveness of a variety of tax cuts this winter, and found payroll tax cuts to be a good option, compared with, say, extending tax cuts for the wealthiest Americans. Moreover, they have positive impacts on employment — and the sustained high rate of joblessness remains the biggest drag on the American economy and a pressing public-policy issue.

According to the CBO, a payroll tax cut is about 25 to 33 percent more stimulative than providing a refundable tax credit for lower- and middle-income households, for instance.

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