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Obama’s Secret Tax Cut

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"Obama’s Secret Tax Cut"

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I’ve made this point before but I think it’s worth looking back at a decision that was considered very clever at the time it was made. In particular, the Obama administration implemented, as a core element of the American Recovery and Reinvestment Act, a large temporary payroll tax cut.

This seems like exactly the sort of thing that would be politically smart to do. It’s a populist-ish measure that doesn’t require the public to have any faith in government action. But it’s also Keynesian stimulus that should lower unemployment rates and help create an environment that’s more hospitable to collective action. But the Obama administration’s reading of behavioral economics literature led them to believe that the tax cut would be more economically effective if it was deliberately disguised so that people would merely perceive a bit more money in their pocket each week without psychologically focusing on the windfall.

Clever! Sort of. Unless, that is, you’re trying to show people that your agenda involves helping the middle class and isn’t just shoveling money at banks and public employees.

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