Is the White House getting serious about trying to fix the economy?
The Obama administration is mulling whether to extend a payroll tax holiday for employees and to cut payroll taxes for employers in a bid to spur hiring, President Obama's spokesman said yesterday.
The news is the first real sign that the White House sees a need to take aggressive measures to get the economy humming again since the recent spate of bad economic news suggested the recovery is in serious jeopardy. Job growth last month was disastrously weak, and many forecasters are reducing their expectations for second quarter GDP. Nearly fourteen million Americans are out of work.
Until now, the administration's major direct response to unveil proposals from the White House jobs council, including streamlining the permitting process for construction projects.
The payroll tax holiday was first enacted in the December tax cut deal forged between President Obama and Congresional Republicans. It reduces the Social Security tax paid by employees to 4.2 percent from 6.2 percent.
The idea of a payroll tax cut for employers has received support from economics of various stripes lately. Christina Romer, President Obama's former top economic adviser, told The Lookout recently that the move would create "good incentive effects for hiring, and good aggregate demand impacts" -- in other words, it would help create jobs and boost growth.
Former Treasury Secretary and Obama economics adviser Larry Summers talked up the idea in the Financial Times this week, and Ron Klain, another former top aide to President Obama, touted it today in a column for Bloomberg News.
But some argue that cutting taxes for employers isn't likely to get them to start hiring. That's because companies already have plenty of cash--they're sitting on $2 trillion. The reason they're not hiring is because of a lack of demand. So it would be more effective to give the whole cut to workers, to get them to start spending money.
"Businesses don't respond very passionately to tax holidays because they know they're temporary," Moody's Analytics Chief Economist Mark Zandi told Fortune.
But the employer-side cut has one crucial political advantage: It's something that Republicans in Congress, and their allies on the business community, might actually get behind. That means it actually has a decent chance of being enacted.
(President Barack Obama at a meeting with the Jobs and Competitiveness Council, June 13, 2011, in Durham, N.C. Left of Obama is Ellen Kullman and right is Jeff Immelt, the chair of the President's Council on Jobs and Competitiveness: Carolyn Kaster/AP)
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