White House Mulling Employer-Side Payroll Tax Cut As Additional Stimulus Measure

The Obama administration is apparently considering a pivot back toward job-creation and stimulus with the idea of an employer-side payroll tax cut. I think the best time in the business cycle to have implemented this idea would have been early in the recession. Part of the appeal here is that directly reducing the cost of employing people increases the incentive to hire. That’s true, but even with unemployment at 9.1 percent the vast majority of the subsidy here goes to defraying the cost of continuing to employ the currently employed. The best time to do that would probably have been right at the beginning of a downturn where it could act as a powerful anti-layoff incentive.

Still, this is a pretty good idea when you’re trying to think of something that sounds politically plausible in the face of public opinion that’s hostile to Keynesian ideas. The connection between the stimulus and the job creation is clear, it doesn’t sound like a stealthy plan to abolish capitalism, it will help small businesses and growing entrepreneurial firms, etc. But contemplating both the pluses and minuses of this idea really brings home what a mistake it was to not go for something big on employment back in 2010 when the prospects were much brighter.