I Coulda Had a Payroll Tax Cut

The U.S. needed a fiscal stimulus in 2009, but not the fiscal stimulus we got. Much of the Obama stimulus consisted of blowing dust off the mouldering wish lists of Democratic appropriators and cramming them through Congress as just the medicine ordered by the emergency. Now the administration has reached the absurd result of trying to count one-by-one the jobs supposedly created by its ramshackle plan. Embarrassingly, many of the jobs are located in congressional districts that don’t exist.

There was a better way. A fast-acting, direct-to-consumers, no bureaucracy created alternative – a payroll tax holiday.

Michael Boskin again reminds us of the case in favor in today’s WSJ:

The payroll tax cut would have reduced firms’ costs by roughly the same amount as from the entire decline in employment. It would have cost less than half as much as the stimulus bill, gotten far more income into paychecks quickly and, most importantly, greatly reduced incentives for firms to lay off workers. In fact, it would have created incentives to hire.

And it’s still not too late!

It would be far better to junk part of the remaining stimulus in favor of a one-year partial payroll tax cut. Also accelerate spending that needs to be done eventually, such as replenishing depleted military equipment used up in Iraq and Afghanistan and adding a desperately needed two Army brigades.

Then this good advice for the longer term:

By far the best response to these headwinds is to curtail the huge current and contemplated future government control of the economy with a clear, predictable exit strategy—before the programs become permanently entrenched, develop powerful dependent constituencies, and greatly increase the risk of rising interest rates, inflation and taxation. Doing so would more rapidly improve the outlook for permanent private-sector employment, investment and growth than any conceivable second stimulus. It would also allocate capital and labor to their highest value in providing goods and services that people actually want and need, not what government bureaucrats want them to have.

The jobs agenda must begin with a Hippocratic oath: First do no harm to employment. That means jettisoning or at least delaying job-killing energy and health-care legislation with their mandates, taxes and costs that especially hammer small businesses.

Also wind down, as soon as possible, the emergency measures which healthy businesses, households and investors fear will become permanent competitive impediments. Start with the Troubled Asset Relief Program, which the Treasury uses as a permanent revolving fund even fornonfinancial bailouts.

Financial regulation should focus on disclosure, transparency, effective clearing, capital adequacy, and new bankruptcy procedures. We also need a Plan B, modeled on the Resolution Trust Corporation cleanup of the savings and loans, in the event the losses on toxic assets are too large for time, profitability and economic recovery to manage. And the Fed must forestall future inflation by withdrawing its immense liquidity injections as soon and predictably as feasible (its initial steps are commendable).

Finally, if possible, we should complement these pro-employment policies with long-run fiscal reform: control entitlement cost growth, e.g. with price rather than wage indexing of Social Security, and real tax reform with the widest possible tax bases and lowest possible rates. America’s corporate tax rate, the second highest among advanced economies, is especially damaging.

I’d add only one point more: don’t forget healthcare. The problem of crushing cost increases will not go away, even if the Democratic health plan does.