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The American Jobs Act: Cutting Payroll Taxes Supports Consumer Spending

Submitted on October 14, 2011 - 12:00pm
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This morning, the U.S. Census Bureau released its latest Retail Sales figures for September and they went up sharply (1.1percent), with gains in lots of categories.  The gains in July and August were revised upwards, too.  From an economic growth point of view, this is unequivocally good news.  However, history and statistics tell us not to get too excited over a single data point. So, although this is good news, it is clear that economy is not growing as fast as it needs to. That’s why President Obama has proposed cutting payroll taxes in half for 160 million workers next year.

As the Economics and Statistics Administration has already shown, job gains combined with lower taxes equals more spending. That’s why these tax cuts make sense. They help create demand to give the economy a little breathing room while it recovers.

The president’s plan will expand the payroll tax cut passed last December by cutting workers' payroll taxes in half next year. This provision will provide a tax cut of $1,500 to the typical family earning $50,000 a year. As with the payroll tax cut passed in December 2010, the American Jobs Act will specify that Social Security will still receive every dollar it would have gotten otherwise, through a transfer from the General Fund into the Social Security Trust Fund.

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Jobs comment on your blog

Submitted on October 14, 2011 - 2:32pm.

Friday, October 14, 2:12 PM A Department of Commerce blog post follows up the retail sales beat with a well-timed plug for President Obama's American Jobs Act: "Job gains combined with lower taxes equals more spending. That’s why these [payroll] tax cuts make sense. They help create demand to give the economy a little breathing room while it recovers."

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Duude Comments (3235) this is a comment off Seeking Alpha in response to your blog on extending payroll tax relief will create jobs...i totally concur with the gentlemans comment below ...in a word -RUBBISH !!!

... which means we'll need to plan on an even larger draw from the general fund to keep social security cash flow positive. We've already had a reduction in the payroll tax in place for 2011, how has that added any jobs?

Private Sector Job Growth has been consistent each month

Submitted on October 18, 2011 - 11:24am.

There has been about 1,000,000 new jobs created in 2011 in the private sector. While the payroll tax isn't responsible for all of them, it certainly helps.

Payroll Cutts

Submitted on October 16, 2011 - 10:14am.

As a small business owner, I can tell you this idea of reducing or eliminating the payroll tax on small business employers to create an incentive to hire is ridiculous. There is no business that is going to hire someone to save 6.20% in payroll taxes (the social security component). A small business hires someone when they need someone. Saving $1,860 on an employee that makes $30,000 per year is not going to encourage me to hire them if I do not already need them. It is the equivalent to using a coupon to buy something you do not need.

As for giving the reduction to those small businesses that create jobs, read above, you are just giving it to a business that was going to hire the employee regardless of the payroll tax cut.

The economy will come back with or without the tax cut. Gimmicks such as this just make us feel like we are doing something. If someone has to get the tax break, give it to the worker; they will at least spend it. And, if some choose to save it, that much the better. We all need to save more.

American Jobs Act

Submitted on October 17, 2011 - 1:27pm.

Hi, I would just like to know what the General Fund is and how the Obama administration proposes to transfer money from the General Fund into the Social Security Fund?