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?'"
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