The payroll tax holiday is a bad bipartisan idea

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  • Congress is getting in the holiday spirit, and top on their gift list for workers is extending Obama’s payroll tax holiday

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  • Bipartisan support for extending the payroll tax doesn’t mean it will be easy to pass.

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  • Bipartisan support for the tax holiday doesn’t make it good economic policy.

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Congress is getting in the holiday spirit, and top on their gift list for American workers is extending President Obama’s payroll tax holiday, set to expire at the end of the year. But, as is the case with many gift ideas, this one sounds better than it is in real life.

"Bipartisan support for the tax holiday doesn’t make it good economic policy." --Alex BrillThe bipartisan support we’ve seen for extending the policy doesn’t mean it will be easy to pass, considering the disagreements on if and how to offset its impact on the deficit. But more importantly, bipartisan support for the tax holiday doesn’t make it good economic policy.

The economic argument in favor of a payroll tax holiday is that putting more dollars in workers’ hands will make them spend more, driving up demand for goods and services and ultimately causing the economy to grow. Extending the holiday would likely benefit 160 million workers, totaling about $1,500 per family. This is estimated to add over $250 billion to the deficit. Is it worth it? A review of related academic literature suggests not. In fact, it appears that politics, rather than sound economic evidence, is the motivating factor.

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About the Author

 

Alex
Brill
  • Alex Brill is a research fellow at the American Enterprise Institute (AEI), where he studies the impact of tax policy on the US economy as well as the fiscal, economic, and political consequences of tax, budget, health care, retirement security, and trade policies. He also works on health care reform, pharmaceutical spending and drug innovation, and unemployment insurance reform. Brill is the author of a pro-growth proposal to reduce the corporate tax rate to 25 percent, and “The Real Tax Burden: More than Dollars and Cents” (2011), coauthored with Alan D. Viard. He has testified numerous times before Congress on tax policy, labor markets and unemployment insurance, Social Security reform, fiscal stimulus, the manufacturing sector, and biologic drug competition.

    Before joining AEI, Brill served as the policy director and chief economist of the House Ways and Means Committee. Previously, he served on the staff of the White House Council of Economic Advisers. He has also served on the staff of the President's Fiscal Commission (Simpson-Bowles) and the Republican Platform Committee (2008).

    Brill has an M.A. in mathematical finance from Boston University and a B.A. in economics from Tufts University.

  • Phone: 202-862-5931
    Email: alex.brill@aei.org
  • Assistant Info

    Name: Brittany Pineros
    Phone: 202-862-5926
    Email: brittany.pineros@aei.org

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