8/27/2019

Trump’s Tax Cuts Wouldn’t Necessarily Help

"So far the idea of a payroll tax cut has garnered the most attention. America’s Social Security system imposes a 6.2% tax on both the employer and the worker. If that tax were lowered, the incentive to hire workers might be greater.

That logic is correct as far as it goes, but it is important to cut payroll taxes in exactly the right way. The inclination in American politics is to cut the payroll tax on the worker side, not the employer side. That is the opposite of what should be done.

In a recession, the usual problem is that too many people are seeking too few jobs. The reluctance lies on the side of the employer, not the worker. So cutting the taxes paid by the worker won’t help much. In contrast, cutting the taxes paid by the employer might at least boost the demand for workers and thus stimulate employment."