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

Amid the uncertainty [1] 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 [2] to the nation’s economy.

As we’ve written before [3], “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 [4]. Economists estimate that extending the payroll tax cut next year could create between 400,000 to 1 million new jobs [5] 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 [6] over the past year (from October 2010 to October 2011).

Although there is considerable evidence that direct spending and refundable tax credits [7] targeted to low-income and middle-class families provide more bang for the buck [8] 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 [9].  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.