Amid the uncertainty over whether Congress will agree to an extension of the payroll tax holiday, one thing is certain (or at least as certain as things get in economics): extending the payroll tax holiday for another year would provide a significant and much-needed boost to the nation’s economy.
As we’ve written before, “the key to kick-starting an economy that’s currently stuck in neutral is to restore the buying power and confidence of American consumers, thereby ensuring businesses that they will continue to have a growing market for their goods and services.”
Failure to extend the current payroll tax holiday would cost the average North Carolina family almost $1,000 next year at a time when the economy’s prospects for a strong recovery appear slim. Economists estimate that extending the payroll tax cut next year could create between 400,000 to 1 million new jobs across the country. That could translate into 12,000 to 30,000 jobs in North Carolina, if North Carolina’s economic benefits from the payroll tax holiday were to align with the state’s 3-percent share of the nation’s economy.
To put that in figure in perspective, North Carolina’s economy only added 12,000 total jobs over the past year (from October 2010 to October 2011).
Although there is considerable evidence that direct spending and refundable tax credits targeted to low-income and middle-class families provide more bang for the buck for creating jobs, Congressional Republicans and some Democrats have resisted approving most of the direct-spending measures included in President Obama’s American Jobs Act. If tax cuts are among the only job-creation tools left capable of attracting bipartisan support, Congress would be well advised to act quickly on extending the payroll tax holiday for another year.