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. Jj

    have fun in the place where you believers go s1n. 😦

    September 10, 2011 at 3:01 am | Report abuse |
  2. Chris

    If you haven't watched it already, I summarized Obama's speech for you with Streamliner:

    September 10, 2011 at 3:21 am | Report abuse |
  3. banasy©

    "Jeez, it's too early for me to be up! I'm going back to bed!" – Me

    September 10, 2011 at 7:40 am | Report abuse |
  4. gung hoe

    @sin @fake jj you had said something about SPINELESS hummm kinda sounds like you to me dont it patton Just sitting back waiting for people to be done with their conversation to say what you want without being challenged Isnt that right buzzkill or sin or drakorex or howabout using your own name and sticking to it WUSS

    September 10, 2011 at 7:40 am | Report abuse |
  5. Trollbuster

    @gung hoe:

    Not the patton troll. Drakorex1 and Buzzkill are not trolls. Neither is S1N or jj. There's a rroll who does that, but it's not who you named. All this will do when you start throwing out names like that is p!ss the people off whose names they actually belong to. Take a page out of Scottish Mama's book and just say, "not me." And yes, that is a trolls's MO: throw out a statement and run away. Corwards, all!

    September 10, 2011 at 8:12 am | Report abuse |
  6. the prophet

    Politics is a process used by Governments, to formulate tactics and apply policies, to either acquire or stay in power and control. The behavior of e society under these systems are more predictable, which we call democratic. The election process part of a-democracy, this system uses the people votes to elect the Government, at the same time a Government is elected it let Government know of people state of mind and why they elected it, thence allowing the Government to make adjustments so that the Government remains in power. If you are not happy with your Government don't go out and vote for it, without an elected Government!! the Government has no power, America doesn't need more Government, policies, acts, nor more bureaucracy, on your next election don't vote. Take America back to the people. Buy my book when I finish it. GOD bless AMERICA          

    September 10, 2011 at 8:18 am | Report abuse |
    • Jean Sartre

      Yes, you are indeed a prophet, both in your own mind and for all psychotics...

      September 10, 2011 at 10:43 am | Report abuse |
  7. @SIN

    Lmao..."spineless vs batsh!t crazy 2012' So accurate and yet so hilarious. Good one. That wike me right up.-Me

    September 10, 2011 at 8:24 am | Report abuse |
  8. @SIN

    "wike"...well, not all the way up evidently. Good one though. 🙂

    September 10, 2011 at 8:28 am | Report abuse |
  9. Recollections as to why America needs more government.

    1.) Texas and Iraq have about the same population. 2.) Most of us remember what Iraq was like when there were only 150,000 peacekeepers there, for the others had been...well, literally given wooden guns. 3.) Imagine if Texas authorities were only allowed to have wooden guns and 150,000 armed peacekeepers. 4.) Don't sh!t yourself. You know what would happen in Texas, for example.

    September 10, 2011 at 8:37 am | Report abuse |
  10. Recollections as to why America needs more government.

    1) Recall from memory that government officials were citizens who later became government officials.2.) If you recall the government being up to no-good...3.) take a look at what citizens have been up to, and especially these days.

    September 10, 2011 at 8:50 am | Report abuse |
  11. @ SIN

    You claim that "inherited sin" is an laughable concept, yet with DNA technology, it has been proven true. The word "sin" as found in the bible, if transliterated, means 'to miss the mark of perfection'. The word was borrowed from a Latin word used to descibe Roman archers hwo missed the bullseye of their target...if the missed, they were said to have sinned. DNA tech. shows conclusively that we inherit the imperfections, aka 'sins', of our parents. Do you have the brain capacty required to see this or not.

    September 10, 2011 at 10:44 am | Report abuse |
  12. George Patton

    What does on expect this bozo Obama to do anyway? Since these idiotic wars are not helping the national economy, he has to do something since he stands to be reelected next year!

    September 10, 2011 at 10:53 am | Report abuse |
  13. Russ

    Obama not any of our "Representatives" want to do ANYTHING to help the average American citizen. They are all self serving greedy pigs and deserve to be hanged.

    September 10, 2011 at 12:01 pm | Report abuse |

    obama= waste money...
    why not just take every ones mortgage and make it 2% intrest..
    it would free up tons of money and people would buy stuff..

    September 10, 2011 at 12:23 pm | Report abuse |
  15. Angel

    whoooooooohooooooooo! PRESIDENT OBAMA in 2012.

    September 10, 2011 at 12:30 pm | Report abuse |
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