Eliminating the payroll tax would put money directly into economy

Democrats see the job market and have to concede that what they have wrought isn’t good. Unemployment has risen to almost 10 percent despite the stimulus bill enacted last winter and the smaller, bipartisan stimulus of early 2008.

Democratic leaders are slowly discovering that the economy isn’t some old jalopy you can jump-start with a few expert tweaks to the sputtering engine. They are realizing that no jobs and no growth spell trouble for their plans to turn America into a large version of Sweden.

And yet the Democrats are doubling-down on their tax-and-spend agenda. They keep returning to their theory that Beltway politicians know how to micromanage the economy. They seem convinced that the best response to the stimulus’s weaknesses is another stimulus. The evidence suggests otherwise.

Last week, the White House released figures showing that, so far, $16 billion in obligated stimulus contracts have bought the country a total of 30,383 new jobs. This is far below what the administration had hoped and claimed.

Another group of congressional Democrats wants a temporary tax credit for companies that hire new workers. The credit, in one proposal, would apply to 15.3 percent of the cost of a new hire in the first year, 10.2 percent of the cost in the second year and then it would disappear.

Before it vanishes, though, the credit would generate all sorts of market distortions. Depending on the final legislative language, it might disproportionately benefit market incumbents rather than startups. Some companies might try to get the tax break by simply shifting part-time workers to full-time employment, which would do little to improve the job market.

Like most bad ideas, this one has been tried before. President Jimmy Carter included a similar credit in his Tax Reduction and Simplification Act of 1977, and it didn’t work.

The good news is that some Democrats and Republicans are taking a second look at a pro-growth measure, something simple, straightforward and not gimmicky: A payroll tax cut.

The payroll tax hits 60 percent of Americans, including anybody who runs a business. Cutting it would be fast, easy and effective. Where a tax credit is complicated and invites rent-seeking, a tax cut is transparent.

Another way to go would be not to suspend the tax, but to reduce it — permanently.

The main objection to a payroll tax cut is that it would cost the government money. True, but so would any of the other schemes being bandied about.

Rising joblessness has soured the public on Obama and the Democrats. Their response? Another visit to the empty refrigerator of liberal economics. Sounds to us like an excellent opportunity for conservatives to display some political imagination, put together a bipartisan coalition for a payroll tax cut and help rescue the economy.

The political benefits wouldn’t be so bad, either.

Matthew Continetti is associate editor of The Weekly Standard, from which this article is reprinted.

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