Payroll tax cuts: Job creation or Main Street bailout?
September 9th, 2011
08:27 PM ET

Payroll tax cuts: Job creation or Main Street bailout?

President Obama wants to cut payroll taxes in half to put more money in the pockets of workers under the premise that fatter paychecks mean people will buy more, leading to more jobs.

The White House figures that would put about $1,500 in the pockets of the average working family. That alone would cost the government some $175 billion next year, according to Moody's Analytics.

That’s almost twice what the president wants to spend putting people to work building things like roads, bridges and schools.

But is there any evidence that payroll tax cuts help boost the economy?

Opinions vary, but one thing is certain: It’s hard to predict what families will do with the extra cash, said economist Matthew Shapiro at the University of Michigan.

“Our findings suggest what they will do depends very much on what they expect the near future to look like,” Shapiro said.

If the economy’s looking weak, then people might hang on to that cash, he said.

But, if the economy picks up, “Households might be more comfortable spending the extra cash rather than using it as a buffer against a very uncertain future,” he said.

Shapiro has studied what people said they did with money they saved from payroll tax cuts in 2011. Most of them said they didn’t spend it. They used it to pay off debt or they saved it.

If that’s the case with Obama's latest cuts, that won't add much to economic growth.

That’s why government spending programs on roads, bridges and school repairs give more bang for the buck in boosting the economy, said Lawrence Mishel with the Economic Policy Institute. The government always spends money, though not always quickly.

"The government doesn’t save any money. They don’t pay any debt with it,” Mishel said. “They’re also less likely to generate imports. People, even when they go out and spend, may buy a bunch of stuff from China, which stimulates China, not the U.S."

However, giving workers more money helps in times like these, Mishel said. The money from this year’s payroll tax cut helped families deal with higher food and gasoline prices.

That may give a clue as to why the president's package would put the most money into fattening workers' paychecks - more than he would give in tax breaks to employers and more than he would give to brick-and-mortar projects that create jobs.

Bill McInturff is a Republican pollster whose job is taking the pulse of voters, especially swing voters. He has written about how the spiral in consumer confidence is tied to the downward spiral in people’s confidence in their leaders.

McInturff said he’s hearing one thing over and over in focus groups around the country.

"They’re saying, 'Look, the big banks got a bailout, the car companies got a bailout who’s left to bail ME out?'"

Click the audio player to hear this story from CNN Radio's Libby Lewis:

You can also listen to the CNN Radio Reports podcast on itunes or subscribe to the podcast here.

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Filed under: Budget • Economy • Taxes
soundoff (146 Responses)
  1. THE ONE AND ONLY DRAKOREX1

    SORRY, MY EYE WATERING ITS REALLY BLURRY IM DONE PEACE BBBBBAAACCCCKKKK OOOOUUTTT..

    September 10, 2011 at 5:12 pm | Report abuse |
  2. Jj

    How many people on here are on some kind of assistance? the stars and stripes should now be a sow with a 100million teets! keep givin stuff away and making people dependant. that how the DEMS secure votes and at the same time teAr this country to dung are you proud???

    September 10, 2011 at 7:10 pm | Report abuse |
    • Jason D

      The right just keep giving everything to the richest 3%....which one is america, the top 3% or the other 97%?

      September 10, 2011 at 10:25 pm | Report abuse |
    • IWANTajobnow

      Do your homework people!!!!!!!!!!!!!! Clinton placed a limitation on TANF – should also be one on section 8 and public housing and ANYONE getting benefits taking drug tests – oh but my lord it BUSH that didn't resign that – Texas took 2 of the 5 year program to even start using it. I worked for 35 years of my life we get medicaid and help with food that goes about two weeks. I have sent out thousands of resumes made phone calls etc.... but get no where. I washed dishes made cupcakes, wiped butts and deal with people that don't pay on time going the alternative route. Oh then I can always work two thre jobs and not have benefits for my disabled son. then what?????????????

      There are real people out here that WANT to Work but when you apply to jobs 50% come back with scams. businesses and government agencies and non profits alike are fluffing their books with fake jobs to stay afloat ( like they do with the city govs) – I get so sick of reading about people on "welfare" I fricking paid for it for 35 _ years my parents paid for it. Congress needs to stop greasy the palms of wall street and fanatical churches that suck money out of anyone who will listen and buy their crap books and pay hundreds for seminars on how to pray. You only need Scriptures for that. America has lost its humanity along with other parts of the world. It is sad while oil companies profit in the billions.

      September 11, 2011 at 5:29 pm | Report abuse |
    • Bermille

      The fact is Obama is doing what he can since all the republicans want to do is feed the rich.

      September 12, 2011 at 3:49 pm | Report abuse |
  3. Jason D

    It beats Bushes ides to give checks to every tax paying american...this one creates work or keeps work paying..not just a free check to waste away

    September 10, 2011 at 10:24 pm | Report abuse |
  4. Jj

    Lets talk about giving shall we while half of america takes in some form lets blame the rich people who actually contribute to society. did you get your check this month??? a good many of you just said yes! you are dependent on the liberal teet and will never succeed in life because of this crutch. congrat libs! you have effectively wiped out the american dream giving stuff away when it should have been earned.

    September 11, 2011 at 1:23 am | Report abuse |
    • Ernie D

      So you're saying the govt has to earn your money in some silly fashion just to please you before you'd be willing to pay any taxes at all? You have got to be kidding. Taxes represent the percentage of your income that is due to the country as a whole. If you don't like having a country to live in, go elsewhere. Taxes are just like rent. You don't own this country. You've got to pay a share of your income for the privilege of being an American. We could charge you rent on the roads you drive on, the regulations that keep poison and filth out of your food, and rent for the usage of our soldiers to protect your candy-ass, but we don't. We just charge everyone a percentage of your income. Consider it rent.
      We don't need people around here who hate contributing to the welfare and safety and health of everybody as a whole.
      You are un-American. You have been listening to people who are trying to tear this country down by any means fair or foul. Mostly foul.

      September 11, 2011 at 6:00 am | Report abuse |
  5. Jj

    dont be obtuse. you know that im talking about people that are on the welfare teet.

    September 11, 2011 at 2:53 pm | Report abuse |
  6. Bull Halsey

    Democrats create slaves dependent on big government.

    September 11, 2011 at 6:22 pm | Report abuse |
  7. MEMORIAL USA 911 WHO'S RUNNING THIS COUNTRY$$$$

    WHEN YOU PEOPLE TAKE YOUR HEAD OUT OF THE SAND YOU WILL SEE THE BIG PICTURE AND IT ISN'T PRETTY/ EVERY MAN FOR HIMSELF!

    September 11, 2011 at 9:04 pm | Report abuse |
  8. Optimistic Realist

    I believe there isn't an American who could disagree that there is a problem that needs solving when such a high number of Americans can't even pursue the bootstrap-pulling dream that once was ours. The strap broke. We all need to think intelligently, unbiased, and without political loyalties here to solve this problem. If you disagree with Obama's Jobs Bill, so be it! Whatever ideas you believe will work, put those forth to our Congress and our President. Be willing to hear others with empathy and intelligence. We all feel for everyone who is struggling to meet basic needs. Our system is broken, we need a team effort to fix this. What can YOU offer (besides emotive language)?

    September 12, 2011 at 12:46 am | Report abuse |
  9. WOT

    Main street is dead street, the streets when out with the pay phone And walmart!

    September 12, 2011 at 1:18 am | Report abuse |
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