Friday, March 20, 2009
Payroll Tax Holiday
Rick Hertzberg pimps the idea of a payroll tax holiday as a stimulus option and then also advocates abolishing the payroll tax altogether. Abolishing the payroll tax would be a step in the right direction policy wise. It is a regressive tax and it is a tax on labor thereby reducing the returns to work. That said, the payroll tax currently comprises about 1/3 of all federal revenues. Even if you implemented some taxes such as a carbon tax and a securities transaction tax, you would only be a 1/3 if the way towards offsetting payroll tax revenues. If you were to completely offset the payroll tax you would have to implement a VAT or consumption tax of some form in addition to a carbon tax/securities transaction tax. Such a shift would probably have negligible distributional effects but it would be a lot more efficient.