The Agenda

A Strong Case Against a Payroll Tax Holiday

Howard Gleckman writes:

 

We don’t know what the tax cut would be, but let’s say it would reduce the employer share by half, or about 3 percent. That comes out to an average tax cut of about $1,200 for each new employee. Would a company hire a new worker for, say, $38,800 instead of $40,000? Most wouldn’t.  At this point in the business cycle, firms hire when they need workers to fill orders, not to get a relatively small tax break.

Of course, companies operating at full capacity would be happy to take the tax cut. But for them, it would be little more than a windfall for doing what they were going to do anyway.

Perhaps a payroll tax cut circa 2009 would have inclined some firms to retain more workers, thus stabilizing the employment picture. But Casey Mulligan suggests that cutting payroll spending per se wasn’t the primary motivation for layoffs during the recession.  

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