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. banasy©

    LM herman: Shhhhh!


    September 9, 2011 at 10:14 pm | Report abuse |
  2. Jazzzzzzzz

    Lay Minister is fine, and right

    September 9, 2011 at 10:17 pm | Report abuse |
  3. layminister herman

    Before you know it i will think im nipsy russell

    September 9, 2011 at 10:17 pm | Report abuse |
  4. haha

    same economists that are suprized all the time predict obamas plan creates 1M jobs, right and they arer suprised when unemployment risese and the we have the tax cuts, well pass it today but obama has nothing wrote down so this was another obama lie, well you needed a lie to impeach obama, well you got you lies SO IMPEACH the lieing pig, target him like he targets conservatives, put the cross hairs on him, its time to put him in the sights and do what hoffa said and at the same time hoffa should be targeted for removal for threats. Someone do their job, arrest obama and hoofa instead of putting conservatives in jail as political prisoners because they disagree with zero jobs obama.

    September 9, 2011 at 10:18 pm | Report abuse |
    • hahahaha

      You should use some of the money from your new tax cut to go to school and learn how to spell and write coherently.

      September 9, 2011 at 10:50 pm | Report abuse |
  5. banasy©

    Oooooh! Loved Nipsey Russell on "The Match Game"!

    September 9, 2011 at 10:19 pm | Report abuse |
  6. Ree

    Stimulus provided by the taxpayers for the taxpayers. Once again we are funding the economy with a loan. This is the whole problem that we are in. We can not live within our means. At what point will we not be able to get more loans? We can live on credit!

    September 9, 2011 at 10:20 pm | Report abuse |
  7. Jazzzzzzzz

    Your great X infinity won't see that *loan* back

    September 9, 2011 at 10:22 pm | Report abuse |
  8. layminister herman

    Thanx jazzzz .but ive still gotcha in my prayers

    September 9, 2011 at 10:22 pm | Report abuse |
  9. Jazzzzzzzz

    your too kind, and I'll except it in the name of Jesus' to keep me going with my bible reading and understanding
    funny when you hurt , he doesn't get mad atcha , why is that?

    September 9, 2011 at 10:26 pm | Report abuse |
  10. Garyd2

    The one million jobs that Obama is going to create isn't a drop in the bucket since the republicans have said they were going to create 10 million jobs, now that is a ton of jobs, this is since the last election. McDonalds is paying $15.00 an hour where I live, they are having to import workers from mexico just to try and fill the jobs. Life is grand ain't it?

    September 9, 2011 at 10:30 pm | Report abuse |
  11. "It will cost the government"

    Tell it like it is. It won't cost the gov. one thin dime. It will cost the future taxpayer, who are but currently children, with many of them missing and unaccounted for every single day. (Jazzy meant 'pead-o-file. The word 'context' comes to mind) Your child's future has been bargained for YOUR cheap stuff NOW, not counting the looting of Social security to sponsor foreign wars.

    September 9, 2011 at 11:20 pm | Report abuse |
    • S1N

      I will see your "context" and raise you one dictionary.

      September 10, 2011 at 2:24 am | Report abuse |
  12. Ancient quotes that still apply today

    "He will reduce taxes and debts, he declares, and has done so, to our economic ruin, and the bareness of our treasury which has been looted for wars...and the benefits of foreign dependancy's and nations."–Cicero, concerning the Roman government.

    September 9, 2011 at 11:29 pm | Report abuse |
  13. Ancient quotes that still apply today

    "No! A government rarely represent the people! Love of country is often confused in simple minds with love of ones government."-Cicero, concerning the mass of Roman citizenry who were simply stupid.

    September 9, 2011 at 11:35 pm | Report abuse |
  14. Ancient quotes that still apply today

    "We can be certain of one thing: this temporary alleviation of taxes will result in greater taxation and final collapse. It is pure bookkeeping. But are the people concerned with budgetry, and the hard fact that one cannot spend what one does not have, without bankruptcy? No! They cry 'hail !' to the [Obama] for an immediate gain at the expense of the nation."-Cicero, concerning how Romans, as long as they got their free bread, circus, and gladiator games, were quite docile. Deeper in debt, but easier to manage.

    September 9, 2011 at 11:43 pm | Report abuse |
  15. Ancient quotes that still apply today

    "...never was a government but that was a liar, a thief and a malefactor." Tullius. (Cicero's grandpa...a very wise old man who had seen them all)

    September 9, 2011 at 11:49 pm | Report abuse |
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