Huffpost Business

Payroll Tax Cuts Gain Support -- Including From Roubini

Posted: Updated:

As President Obama's recent proposal for new stimulus programs has elicited mixed reviews from financial pundits, there's been growing support for another measure that the administration reportedly isn't considering -- payroll tax cuts.

Prominent economist Nouriel "Dr. Doom" Roubini, co-founder and chairman of Roubini Global Economics, argues for such a cut in today's Washington Post, saying a two-year reduction in the tax, whose burden is shared by employers and employees, would stimulate both hiring and spending. He adds that allowing the Bush tax cuts for the wealthy to expire would fully pay for this program. Here's Roubini:

"Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less -- and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do."

In the Wall Street Journal last week, Republican governor of Indiana Mitch Daniels also supported payroll tax cuts. The details of his plan are different: He proposes a one-year reduction, paid for by a host of cuts to government spending. His basic idea, though, is similar to Roubini's, that the government's first priority should be to fight unemployment directly. Here's Daniels:

"Moreover, the administration's big-government policies -- most notably health-care reform -- are holding back job creation. Drowning in new or pending regulations and taxes, businesses, banks and investors are understandably sitting on dollars that could be putting Americans to work."

As the New York Times reported last week, economist Nigel Gault also supports payroll tax cuts. The chief U.S. economist at consulting firm IHS Global Insight said the president's proposals for infrastructure spending and research subsidization could help, but they're "not going to kick-start the economy." A payroll tax cut, he said, just might.

The NYT says the White House doesn't like the payroll tax cut because it would sap money from Social Security and Medicare. Paul Krugman, for his part, has called that argument "old nonsense."

Quick Poll

Should The U.S. Implement A Payroll Tax?

Yes, it will fuel demand in the economy.

No, the deficit is more pressing.

Around the Web

Why No Payroll Tax Cut? « The Washington Independent

Nouriel Roubini - What America needs is a payroll tax cut

Matt Miller - A tax cut we need -- but won't get

The Right Time for a Payroll Tax Cut? - The Agenda - National ...

Mitch Daniels: Time for Emergency Economic Reform -

President Obama, Senators Advance Payroll Tax Cut to Spur Job ...

What America needs is a payroll tax cut

Secondary Sources: Rajan and Krugman, Payroll Tax Cut, Traffic and Tolls

Why No Payroll Tax Cut?

Q&A: Geithner on the Economy, Tax Cuts and China

Payroll Tax Cut Abandoned, But Infrastructure Plan to Be Announced Today