Payroll Tax Breaks: Will Obama’s Plan Create Jobs?
EmailTonight President Obama will lay out his plan to create jobs and spur economic growth. One of its provisions will be a one-year extension of the two percent Social Security payroll tax break that was enacted as part of the 2010 stimulus plan.
Last year the rate was reduced from 6.2 percent to 4.2 percent, a decrease that saved the average family of four about $1,000 per year and cost the federal government about $112 billion. It was the first payroll tax decrease since 1968.
“It will put more money in people’s pockets than they would otherwise have, and as a result they will spend more,” said Roberton Williams, a senior fellow at the Urban-Brookings Tax Policy Center. “The question right now is, How much more?”
Because the Social Security payroll tax is only collected on the first $106,800 of income, a rate reduction gives a greater boost to middle and low income workers than the country’s wealthiest residents. But, Williams said, the tax break will probably have less of an effect on consumer spending than if the $112 billion was concentrated specifically on low-income workers.
“Typically we expect people at the lower end of income distribution to spend more of every dollar coming in,” Williams said. “So it would probably be better to target money toward the bottom of the distribution. That’s not how this works. It doesn’t target the bottom end.”
But, as the Tax Foundation’s Nick Kasprak points out, a payroll tax credit is one of the only politically feasible ways to pump money back into the floundering economy.
“It’s a low-hanging fruit for Obama to take in terms of doing some sort of stimulus right now,” Kasprak, an analyst and programmer for the Tax Foundation, said. “It’s a lot easier in the current political environment to pass a tax cut than some kind of spending measure.”
House Majority Leader Eric Cantor said today that he may be open to the president’s proposal to extend the tax break that is set to expire at the end of the year.
“It is something I supported in the past,” and “will be part of the discussions ongoing,” Cantor said, adding that “Republicans are not for raising taxes.”
But with Obama’s re-election prospects hinging on the state of the economy, just how effective could a payroll tax break be in stimulating job growth?
“It won’t be,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation, a conservative think tank. “Let’s not forget it’s in place right now and the unemployment rate is 9.1 percent.”
Dubay said a better option would be, for example, permanently reducing the corporate tax rate, which is currently the highest in the world.
“Temporary tax measures never spur economic activity because families and businesses don’t make economic decisions based on short term tax breaks,” Dubay said. “When trying to achieve a specific purpose, it has to be done correctly and the payroll holiday is the wrong way.”
But the Obama Administration has said a payroll tax cut is the right way to help the people who have been hit hardest by the recession — low and middle income Americans. The Democratic Senatorial Campaign Committee issued a release in August attacking Republicans for not supporting the extension.
“The payroll tax cut provides relief to middle class families that need it right now, not special interests that get all the tax breaks,” DSCC spokesman Matt Canter said in the release.
If it were up to presidential candidate Rick Perry, the federal payroll tax would probably disappear altogether. The Texas governor and GOP presidential front-runner has said Social Security and Medicare, the two programs paid for by payroll taxes, should be run by the state, not the federal government.
“I think the states are the ones who should be making the decision on whether or not they want to be spending their dollars on those types of programs—not having it made in Washington, D.C, ” Perry told the Daily Beast last November.
In his book Fed Up! Perry calls Social Security a “Ponzi scheme,” a “failure,” “something we have been forced to accept for more than 70 years now,” and one of many New Deal programs that have “never died, and like a bad disease, they have spread.”
Most Texas public employees do not pay into the federal Social Security system and instead are enrolled in state retirement programs. For example, most public school teachers get their retirement through the Teacher Retirement System of Texas and pay a flat 6.4 percent tax, a higher rate than the Social Security payroll tax even before the 2010 tax break.
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The short answer is “no”.
What’s wrong with Obama’s reported plan?
The extension of payroll cuts will inflict damage/less income to social security resulting in more calls to cut social security. New payroll cuts =same thing.
Extending unemployment? Good idea. Employers trying out workers for free? A stupid idea that you would expect from a republican. There may be a few employers who would use the policy as it is intended but most of them don’t have that many ethics. A lot of them would start getting rid of the people they currently have on the payroll and substitute the free employees for as long as they were free.
Money for roads and bridges might reach their intended goal, but what do you want to bet the money for the schools and hiring teachers will be siphoned off (probably as intended) to subsidize Obama and Duncan’s goal to privatize schools.
Throw in the cuts to social services that will result from the above spending and its a future disaster.
All thumbs down all the way.
Posted by: whatever | September 8, 2011, 6:55 am 6:55 am
Interesting how liberals find a way to blame the Bush tax cuts for all of today’s ills but have nothing to say about Obama’s tax cuts. Even worse, the Obama tax cuts pull money from Social Security which is projected to run out of money in 15-20 years. Not only does Obama’s plan go against everything that liberals say about deficits and debt, it defies logic. Apparently, there is something wrong with the average citizen being able to direct $1,000 of his/her SS tax into a personal investment but there is nothing wrong with the Obama administration attempting to force those same individuals to take $1,000 and spend it. Nope. Mine went into investments and so far this year, despite the down market, I’ve earned a 4.8% return. In the meantime, my other “investment” (Social Security tax) has earned nothing and been used to buy T-Bills to support this country’s debt. Go figure.
Posted by: wantingbalance | September 8, 2011, 9:58 am 9:58 am
Obama’s plan will not work with the Repubs and Tea heads blocking him all the way. They will want more cuts without bringing in revenue! People need to stop blaming Obama for the way the economy is going…. When Bush took office in 2001 the U.S. had a surplus of $100B… and had a surplus for 10 years running. In 2003 he gave tax cuts to the tune of $1.3 trillion and then the wars started! In the next 2 years he gave another tax cut! Now… I may be crazy, but all the tax cuts and the war.. no one expected the economy to tank???? All I can say is… Lord help us if another Repub gets into the White House! We will be in for more of the same. Never saw such a mess until we had an African American President… its not because of him (Obama) though. its due to just that…the Repubs refuse to accept a black man as their President. No, it’s not pulling the race card, it’s a fact. They never fought Bush or disrespected him in the way that they do Obama. It’s so obvious.
Posted by: Lorrie | September 8, 2011, 11:02 am 11:02 am
This is another stimulus package. The money will probably go toward Obama’s re-election campaign. Anyone who votes for this moron again is a fool. I can not see how anyone is approving this guys performance. This country is in a sh** hole, because of him, Obama and his administration. He should be removed from office now, to salvage what is left of this country.
Posted by: John | September 8, 2011, 11:10 am 11:10 am
It did not work last year and it wont work this year. The only thing it will do will expedite the end of Social Security. The one termer has no clues on how to create jobs and everyone should have learned that Keynesian economics does not work.
Posted by: JTH | September 8, 2011, 11:11 am 11:11 am
Without demand for the products and services then no. There are more people than the economy can employ and remain competitive, the most competitive will get the jobs, those that are not won’t. Technology has reduced the numbers of workers needed far below out population. As long as someone else can do the jobs cheaper that is who will get the jobs, as long as someone can do a better they will get the job. All the government can do is bet with taxpayer money that things will get better before the money runs out, and if it doesn’t get better we are back where we started.
Posted by: snewsom2997 | September 8, 2011, 11:16 am 11:16 am
The question is kind of oxymoron. With all due respect Amy, you should pose the question as the tittle of your blog. I’s redundant but since we were asked, the question is NO. The records have shown that the damages have been done and Obama cannot undone them.
It’s a bit too little and too late. Once the leader looses his respect, the leadership no longer exists. It’s time for another leader to lead us out of this mess.
Posted by: acdc2012 | September 8, 2011, 11:26 am 11:26 am
Businesses will hire more people when the demand for their goods or services increase. They will not hire someone if they don’t need them, incentives or not. If comsumers aren’t buying, no one is hiring.
Consumers will buy more when they have more discretionary income. Right now they are in survival mode. Spending only what they HAVE to spend and not buying any unecessay goods or services.
Want to stimulate the ecomomy? What started the downfall? Energy costs. Start with reducing the cost of doing business, delivery of goods to market, fuel for farmers, heating/cooling homes, and the cost of getting to work by exploiting our own resources. If we get the cost of the necessities down, consumer purchasing power increases. They’ll buy more goods & services which will drive up demand and businesses will respond to the demand.
Want to stimulate it more? Get rid of the professional politicians. Most are far removed from the realities of living outside of D.C. Is there really a need to write laws and regulations all year, every year? When are there too many laws? Too many regulations?
Posted by: RealityCheckIs In The Mail | September 8, 2011, 11:38 am 11:38 am
@ ACDC2012 —– Once the leader looses his respect, the leadership no longer exists. It’s time for another leader to lead us out of this mess——
The Republicans had no respect for Obama to begin with.. that was evident from day one. A Republican (Bush) started this mess, do you really think a Republican will get us out of it? I seriously doubt it. They will have us Americans living in the streets first!
Posted by: Lorrie | September 8, 2011, 11:53 am 11:53 am
Lorrie, that where a lot of Americans are living now. You can not spend your way out of debt, and that is exactly what Mr. Obama is proposing again. The American can not allow that to happen again. Sorry, Lorrie, Bush did start it, but Obama promised he would do what he can to fix it, and none of his policies or Nancy Pelosi’s or Dodd’s or Barney Frank’s policies fixed it. They made it worse
Posted by: John | September 8, 2011, 12:18 pm 12:18 pm
No, It won’t create jobs, just as neither of his earlier versions did. His dept. of justice has told Gibson guitars they will back off on their prosecution if Gibson offshores their jobs to Madagascar. His NLRB has shut down Boings plans to add jobs in S.C. His recent proclamation that illegals will get work permits will surely help unemployed Americans. To boot, both parties continue to allow more than a million legal immigrants into the country each year, again, terrible for the American people. He can say blah blah blah all he wants, Watch his actions. His actions work to increase unemployment and quash business expansion, about as unamerican as you can get.
Posted by: Spike123 | September 8, 2011, 12:19 pm 12:19 pm
I understand your point John,…. but with no revenue coming in and things still needing to be done, what choice is there??? CUTS AND NO REVENUE!!!!
Posted by: Lorrie | September 8, 2011, 12:25 pm 12:25 pm
The reason for no revenue is no one is working. Get all of those people back to work paying taxes that will generate revenue. How do we get companies to hire? To start get rid of the Dodd and Frank regulations which cost companies billions. It may not seem right to do cut corporate business tax, they have the money, they create the jobs, sorry it’s the facts. I blame most or all of this on the policies written by Pelosi, Dodd, and Frank when they control of the House, which by the way was when Bush was president.
Posted by: John | September 8, 2011, 12:48 pm 12:48 pm
Sure! Just look at how many jobs the current payroll tax holiday has created! I thought tax breaks added wildly to deficits. At least that’s what ALL of the Democrats say about the Bush (now Obama) tax cuts.
Posted by: s | September 8, 2011, 12:50 pm 12:50 pm
S,
that’s a tax cut for the worker. the last time i checked, the worker does not create jobs, the employer does. we need tax cuts on the employer to create jobs, not regulation. the tax holiday was another “spend” idea of Obama, if people have more money they will spend it. well the American people smartened up, we are no longer the American Consumers, we are the American Savers. Let China start buying our goods as services for three decades our economy will be booming in no time.
Posted by: John | September 8, 2011, 1:22 pm 1:22 pm
Waiting for it, waiting for it, and there it is – Lorrie with the first race card throw down. Lorrie, Lorrie, Lorrie! The vast majority of the loyal opposition have no feelings one way or the other about the president’s skin color; it’s his politics that are destroying our nation – that’s what I detest. We wouldn’t need so much revenue if the dumocrats in the first two years of his term hadn’t stolen billions from us and spent them on trying to hold onto power. It’s for the little people – right! Hopefully, you are are in the minority (oh, can’t say that) this time and enough intelligent people who actually look at the situation and use their brains to assess it, will get out and vote to end this “king’s” reign.
Posted by: Amy | September 8, 2011, 1:36 pm 1:36 pm
This administration just proved they cannot think of anything worthwhile to help Americans acquire jobs. Definition of insanity applies.
Posted by: wildblueyondergoAF | September 8, 2011, 2:05 pm 2:05 pm
@ JOHN ——STOP THE BS! YOU SOUND JUST LIKE BOEHNER AND HIS BAND OF IDIOTS! The revenue is not there, not just because of the high unemployment rate, but because of the HUGE tax cuts these companies and the right are enjoying. There is NO WAY that with the profits they are making that they can’t afford to hire at least 1 person! Why am I paying more tax than a CEO when I make under $30,000. annually???? Are we actually supposed to believe the crap about the HUGE expense that hiring puts on a company that is making billions… making money hand over fist!!!!????? .. IT’S CALLED GREED!!!!
Posted by: Lorrie | September 8, 2011, 2:16 pm 2:16 pm
@ AMY —— Not throwing out a race card, just the truth. I don’t expect the Repubs to admit to it, even when it’s so obvious.
Posted by: Lorrie | September 8, 2011, 2:22 pm 2:22 pm
Obama is a charlatan.
Posted by: Rasputin3.14 | September 8, 2011, 2:30 pm 2:30 pm
I can assure you as someone running a small business that I would not hire anyone just because of a tax incentive, that philososphy speaks volumes to the abserdity of these political allegations. We hire based on sales volume and lead times, period. To get the economy back, the consumers need to do the spending and not the government. The reason the consumers aren’t spending is credit is hard to get. Credit is what kept the economy growing previously and now that we have to live off what people have in their paychecks and bank accounts, the adjustment is difficult and will be. Prices consumers pay for items has to come down and confidence in the future restored. It seems Washington is not working on or in where the countries problems generate.
Posted by: Eric | September 8, 2011, 3:50 pm 3:50 pm
And it’s interesting how some some of you politely dismiss all the damge Bush did to your beloved country. If you think your beloved country is not continuing to take economic hits from the poor decisions Bush made while he was so called president,maybe you need to think again. Stop pretending you don’t already know this.It’s a shame that you have members of congress that would rather focus on making Obama a one term president than to come up with plans that will put folks back to work.It’s a shame they have that much selfish hate in them.
Posted by: minds12 | September 8, 2011, 4:20 pm 4:20 pm
And please stop with the innocent it’s not about race bit. There have been so many racial comments thrown at Obama and his family since he became president.People make the ignorant comments and then turn around and say I’m sorry. Sorry for what? Sorry because someone called them on it.That’s about it.
Posted by: minds12 | September 8, 2011, 4:28 pm 4:28 pm
The White House pundits are spilling part of the speech! — It’s a progressive trap!! — Just enough GOP issues so they can point a finger at them… yet framed in a Dem format… and NO COST details… so you KNOW its going to be immediately funded, but “paid for” over a long time-frame… typical progressive strategy to get stimulus yet delay the cost cutting!! —— All Obama can do is demonize the right… because he has no record to run on … except a BAD one!!!
Posted by: TheLoyalOpposition | September 8, 2011, 6:34 pm 6:34 pm
Cool. More “shovel-ready” jobs. What are we going to be shoveling?
Posted by: markus | September 8, 2011, 6:36 pm 6:36 pm
Let’s see, $400 billion more debt. Give out billions to corrupt unions. Then use all the illegals that he want deport for the labor to build the roads. Obama has to go Now!
Posted by: norm57 | September 8, 2011, 6:40 pm 6:40 pm
Obama doesn’t have a clue. Get him out of office. He has done more damage to our country than any other president.
Posted by: irishrose | September 8, 2011, 6:57 pm 6:57 pm
Absolutely not! Not at all, no way, positively doomed to fail.
Posted by: Rick McDaniel | September 8, 2011, 7:42 pm 7:42 pm
How long must we spoon feed the self-entitled business man? In a free global market, the only way to bring jobs home is to have the lowest wages. Don’t like that, don’t vote for free market idealogs.
Posted by: Joe | September 9, 2011, 12:39 am 12:39 am
Obama has not succeed in economic matters since the women fainted in front of his stump in 2008. In Private Industry CEO’s are not hired or rehired when results are sparse. Same goes with the Presidency. Americans are starting to say seeing is believing. This speech has to be taken with a grain of salt. It is political in nature and cannot be implemented as far as any spending by the Republican Congress. If we slice off a charge for those that are working we put the government in debt. There are 14 million unemployed in America with varied level of skills. Will they all get a job soon?
Posted by: Jay Adler | September 9, 2011, 12:40 am 12:40 am
Wake up people. Remember the Bush/Gore election? Gore won the popular vote and Bush rigged it so the supreme court hepled him win the election. Meanwhile vice president Cheney had connections with Halburton a company that puts out oil fires. Bush was in bed with big oil and wanted to finish the job that his dad started when Iraq invaded Kuwait. 9 months into the Bush presidency the birth of great wars erupted on September 11. The twin towers went down, the pentagon was Companies all over the country are downsizing and laying off workers. Unemployment rises and Obama tries to help those that are unemployed by extending unemploymet benefits and creating a stimulus package. Republicans begin blaming Obama for the country’s troubles and the masses are gullible enough to believe that Obama can repair the damage in just 2 yrs. The impatient masses elect a conservative house which makes it harder for Obama to fix the problems. With just 14 months left before a 2012 election, the Republicans are flooding the air waves manipulating the public into believing that their neighbor gets benefits and a pension they don’t deserve. Perry comes from a state with some of the lowet wages in the country. The poor, sick and elderly will find themselves in the street when the Republicans get more power.The jobs will pay minimum or worse. It is common sense. The Republicans are doing their best into conning the masses into voting in an administration that will rip the rug out from under many americans
Posted by: Rob Haas | September 9, 2011, 4:13 am 4:13 am
Well….let me just say this. The ‘economists’ who know far more about economuic synergy than ANY OF US put together, have given this plan a ‘thumbs up’. Basically the same anaysis they gave us two to three years ago when they said we needed to spend more to PUT PEOPLE TO WORK! And the GOP obstructed and beat down that effort with a lot of ‘negativity’. And look where we are at today. And those of you against this plan say you have ‘common sense’? …I don’t think so…
Posted by: CND FOX | September 9, 2011, 7:58 am 7:58 am
American manufactureres will hire more workers if their sales go up. That would happen if Americans would “Buy American”.
Posted by: Cal Denver | September 9, 2011, 8:53 am 8:53 am
No. If the feds would ease some of the burdensome regulations heaped on manufacturers in this country we would have a larger industrial base. Truth is manufacturing has moved overseas as much to avoid the high costs of dealing with regulation to countries who could care less. To our environmental friends – doesn’t that just shift the impact somewhere else? I am not saying get rid of the regulation but do we really need to go after the last few percentage points of polutants at extreme high costs? I am not convinced we haven’t gone a bit too far. To Cal, it is hard to find American made goods but I do buy them when I can even at the increased cost. I am looking for a couple of new hunting guns and have found American manufactures to buy from with very good histories.
Posted by: Networker | September 9, 2011, 3:12 pm 3:12 pm
NETWORKER
What cumbersome regulations are you talking about? The reason corporations are going overseas is because they want cheap labor. Any first year cost accountant knows that. If you really want to depend on big business to create jobs, propose a jobs bill that will have all of us working for minimum wage.
Posted by: tmferretti | September 9, 2011, 5:31 pm 5:31 pm
if is so why the president is Asking for money for one more year of Unemployment don’t make sense to me.
Posted by: alfredo | September 12, 2011, 7:08 pm 7:08 pm
Did Obama’s LAST TRILLION DOLLAR plan put anybody to work? What? 3 million jobs? Then why is unemployment higher now than when he stole office? No, his plan WILL NOT work to the betterment of America-it WILL suit him, tho, because his plan is to destroy America. Looks like he is succeding at that…
Posted by: Calvin | September 15, 2011, 10:41 am 10:41 am