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Extending payroll tax holiday would provide big boost to North Carolina’s economy

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.

5 Comments

  1. HunterC

    December 19, 2011 at 8:47 pm

    It is distressing to see advocacy for payroll tax cuts on this blog. Further cutting the payroll tax further undercuts Social Security.

    It only shows how much Obama and Congressional Democrats and — NC’s own Erskine Bowles — have moved this country to the right, that so-called progressives are pushing a payroll tax cut as good for the economy.

    I actually hope Congressional Republicans succeed in ending this back-door scuttling of Social Security.

  2. Jimmy

    December 19, 2011 at 9:55 pm

    Folks continue to think that increasing consumer spending will lead to a recovery. This is totally wrong ! We don’t make the consumer goods any more, and this only leads to a larger trade deficit and more debt on consumers. We are dealing with a structural employment problem, and a very bad monetary policy, both of which need a much different solution.

  3. Ed McLenaghan

    December 20, 2011 at 9:44 am

    Re: HunterC

    On whether progressives should support the payroll tax holiday, I think Len Burman put it perfectly: “Payroll Tax Holiday is not Perfect, but Far Better than Inaction.” Regarding whether the payroll tax holiday threatens Social Security, the lost Social Security revenues from the tax holiday would be made whole by a transfer from general revenues. That said, you’re right to be concerned if the temporary payroll tax holiday were to be extended even after the economy is on better footing.

    More on the potential risks/rewards here: http://taxvox.taxpolicycenter.org/2011/12/02/payroll-tax-holiday-is-not-perfect-but-far-better-than-inaction/

    Re: Jimmy
    It’s actually untrue that most US consumer consumption is of foreign-made goods. Roughly 82% American consumption is “Made in the USA,” and that’s not even counting goods and services that are partly US-sourced.

    http://thinkprogress.org/yglesias/2011/08/09/292128/made-in-china-accounts-for-less-than-three-percent-of-american-personal-consumption-expenditures/

  4. Jimmy

    December 20, 2011 at 10:01 am

    Ed,
    I’ve seen the same ridiculous percentages that you quote from several lame-brained economists. All you have to do is walk through the malls, and you can easily dispel their research. I’ve made some recent tours myself, and literally cannot find any American-made goods anywhere, from clothes to electronics and now even tools. The only thing we are currently manufacturing is large ticket items like planes, cars,machinery, and defense products most of which we export.Everything in the big retail stores is imported except some food items.

  5. HunterC

    December 20, 2011 at 10:14 am

    @Ed

    The arugment that making a tax cut whole by transfers from general revenues is ridiculous. Specifically, it makes SS a part of the phony deficit debate. Generally, less money for government outlays is exactly what the economy doesn’t need right now.

    I’m ashamed I even have to type this basic truth on a “progressive” blog.