Obama Team Eyes Employer Payroll Tax Break - BloombergPresident Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages as they debate ways to spur hiring amid signs that the recovery is slowing, according to people familiar with the matter.
The idea, which is in preliminary stages of discussion, is among several being talked about at the White House as the economy holds center stage for the administration and Congress, the people said on condition of anonymity to discuss internal deliberations. The unemployment rate in May rose to 9.1 percent, the highest level this year.
That the White House is considering another round of stimulus is not too surprising given the persistent high rate of unemployment that is threatening to bump up against the 2012 electoral calendar. IMO, this stimulus should not be adopted for a number of reasons:
1. It would further exacerbate the nation's long-term imbalances, not just a short-term increase in the budget deficits, as it would increase the long-term unfunded liability associated with Social Security.
2. It would undermine any credibility of any fiscal consolidation agreement that might be attached to an increase in the debt ceiling.
3. In macroeconomic terms, it would have only a marginal to small impact. First, the multiplier with such stimulus is well below 1. That means every dollar of this form of stimulus would yield less than a dollar increase in the GDP. Second, hiring depends on expectations about sustained increases in macroeconomic demand that productivity/capital investment cannot accommodate, making it necessary for firms to expand payrolls (a recurring expenditure). Third, companies remain especially risk averse coming out of the financial crisis/recession. Hence, savings from the payroll tax reduction would far more likely be used to bolster cash than to lead to a dramatic increase in new hiring.