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Mark Zandi (via Econlog):

A payroll tax holiday and a permanent payroll tax credit would be effective tax cuts, particularly if designed to help harder-pressed lower- and middle-income households and smaller businesses.

Arnold Kling responds with his assumption that the multiplier effect (economic measurement of the “bang for your buck”) would be rather large. I don’t care much for this analysis. It’s not that I disagree, or have any relevant input on the matter (I don’t). It’s just that even if I did the point is fairly moot.

The most important reason for a payroll tax holiday as opposed to other types of income tax breaks is that lower income workers who do not earn enough to pay Income Tax still pay payroll tax. For many of these lower income workers, the Payroll Tax is their largest tax. Payroll Tax is also matched by the employer, so if it’s a holiday of the entire tax and not just the employee half, then low income workers and business get a break.

Here is why I effectively couldn’t care less about this. It’s not that I’m for the Payroll Tax and against cutting it, crediting it, or any other reduction scheme…it’s that the reason for it existing (Social Security) will still be there. Any holiday will immediately be granted to those up to a certain income and it would be used a justification to increase other taxes, typically on higher incomes.

I would fully support eliminating the Payroll Tax if the thing it funded disappeared. Any gains from any multiplier effects would be lost when someone tried to solve the deficit problem created. The only way to eliminate the deficit is to eliminate the program.