Here's a snippet of the GOP talking points on the the President's jobs speech tonight, specifically as it concerns the payroll tax holiday:
"Now the White House is calling for an [payroll tax holiday] extension when there have been no signs that the temporary measure worked in the first place," the GOP talking points state. (emphasis added)Not surprisingly, the Republican talking points are a lie. I don't know why it still bothers me that the Republicans are willing to lie about the future of our economy, but it does. It is a lie to say that there are "no signs" that the payroll tax cut helped grow GDP and decrease unemployment.
First, Goldman Sachs:
1. The challenge is getting fiscal policy to neutral. We expect the drag from federal fiscal policy to become more significant in Q4 2011 and into 2012 as spending cuts begin to take hold and emergency unemployment compensation (EUC) expires on schedule in early January 2012. As we have highlighted elsewhere (see most recently “What Turns a Stall into a Slump?” US Economics Analyst, August 12, 2011) another important risk to the outlook is the potential expiration of the payroll tax cut, which would raise the tax burden on households by roughly $110bn annually and could potentially reduce growth by as much as two-thirds of a percentage point in early 2012 if it expired. While our forecast assumes that EUC expires on schedule and that spending cuts take effect as planned, it also assumes that the payroll tax cut will be extended. Still, even with an extension of the payroll tax cut for one year, the contraction in the federal fiscal stance from 2011 to 2012 will be more than 1% of GDP, or around $160bn. Thus, just offsetting the expiration of existing measures looks like a challenge, let alone enacting policies that exert a net positive influence on growth in 2012.And Macroeconomic Advisers agrees:
Extending the current holiday on the employee share of Social Security taxes through 2012 would, roughly speaking, cost $120 billion, boost real GDP growth 1/2 percentage point over the year, and raise employment 400,000 by the fourth quarter, assuming (as we do) that employers don't use the holiday as an opportunity to limit raises and or bonuses. Expanding the holiday to include the employer share of Social Security taxes would double the cost but not the stimulus, unless employers passed their tax savings on to workers. In our modeling, a cut in the employer share of payroll taxes goes almost entirely into profits with little effect on either GDP or employment. Hence, we rate expanding the payroll tax holiday to include the employer share of Social Security taxes as an ineffective way to stimulate aggregate demand and hence to boost employment.That last bit, about including employers in the holiday, is the GOP's idea. And not surprisingly, it would have limited stimulative effect, but they want it anyway because, as always, the Republicans aren't interested in helping the country, they simply want giveaways for the wealthy and for corporate America.
