If you want to put more money in the pockets of working people, cutting the federal payroll tax — which, for many, is a larger tax burden than the income tax — makes perfect sense.
If you want to create jobs, cutting the payroll tax for businesses is a risky proposition.
Most new jobs in the United States are created by small businesses — and the payroll tax, while significant, isn't a dramatic hindrance to job growth.
I work for a small business, and I ran the numbers with our controller, and if the Obama stimulus bill passes, the Bay Guardian will probably have enough extra money to hire one part-time employee — as long as we don't pay that person much more than the city's minimum wage. That's something, I suppose. But even multiplied by the millions of small businesses in the country, there's no guarantee it will lead to millions of jobs — particularly since so many small businesses in this country are deeply in debt, scraping for profits and likely to use the extra money for something other than hiring.
And a lot of big businesses already have the cash on hand to hire new workers, but they aren't doing it.
That's because businesses don't make hiring decisions based just on taxes and cash — they hire people when they need workers to fill demand for their products and services. And the fundamental problem with the American economy today is that the very rich, who don't spend most of their money, keep getting more of it, and the middle class doesn't have enough to stimulate demand.
Here's what makes me crazy: The government knows how to create jobs. If that's what Obama wants to do, why not just .. do it?
Let's say you want to create a million new jobs that pay a living wage (say, $50,000). If, instead of hoping that the private sector will be the middleman, Obama directed federal, state, and local governments to hire people to rebuild the nation's infrastructure, teach in public schools etc, that would cost .... oh, about $500 billion.
So for $447 billion, you might only get 800,000 jobs. But that increased economic activity, and the demand it would create, would almost certainly lead to more jobs, probably at least another 400,000 jobs. That's more than a million; the unemployment rate just dropped a full percentage point, and the recovery is well under way.
Why is nobody even talking about this?