Saturday, October 02, 2010

A Tax Cut Both Parties Should Love -- But Don't

Tax cuts and rebate checks to stimulate the economy have been discussed frequently in the media. However, some economists are now suggesting that a payroll tax holiday would be more effective. Even the nonpartisan Congressional Budget Office agrees that a payroll tax holiday would be more likely to increase consumer spending. reports

    The payroll tax is the amount paid by both employers and employees to fund Social Security. Each pay 6.2% of a worker's salary, up to the first $106,800 of income.

    Because of that limit, the tax is one of the most regressive in place today, hitting the working poor and middle class much harder than the wealthy.

    The nonpartisan Congressional Budget Office estimated earlier this year that eliminating payroll taxes was roughly two to four times more effective in spurring economic activity than a reduction in income taxes, the policy option that's getting most of the attention in Congress.

    "This is a better tax cut than a general income tax cut," said Roberton Williams, senior fellow with the Tax Policy Center. He said getting more money to workers who earn less increases the chance that it will be spent rather than saved, a concept popular among Democrats.

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