The Study

Republicans, The Payroll Tax Cut, And The Economy

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Congressional Republicans, still licking their wounds after a bruising, losing fight with President Obama over the payroll tax cut last December, have preemptively surrendered this time around. Late last year, they fought against a payroll tax cut extension and succeeded in limiting it to only two months. But the politics of the fight were disastrous, and this time they’ve offered to extend the holiday without even insisting on offsets. What does this mean for the economy?  

A 2011 report from the Center on Budget and Policy Priorities inspires relief, but not optimism. By avoiding a premature halt to payroll tax holiday, we may have avoided what the report calls a “self-inflicted blow,” but the authors note that because the tax cut is already in effect, its extension “would provide no new boost to the economyit would simply prevent the withdrawal of existing support for economic growth.” That said, the tax cut’s impact is substantial: It saves the average family about $934 per year, and in 2011 it boosted all workers’ take-home pay by about $120 billion. Independent economists argued that a failure to extend the tax cut could reduce economic growth by about two-thirds of a percentage point in early 2012, and as much as a whole percentage point over the course of the yearleading to perhaps one million fewer jobs by year’s end. Feels good to have dodged that bullet, doesn’t it? 

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