NDN Applauds Payroll Tax Reduction Approach in President's Jobs Plan, Urges Adoption By Congress

There is much to applaud in the new American Jobs Act.  NDN/NPI is particularly pleased with the emphasis the President has put on using reductions in the payroll tax to stimulate job creation.  The President proposed the following payroll tax reductions in the AJA:


Cutting the Payroll Tax Cut in Half for the First $5 Million in Wages: This provision would cut the payroll tax in half to 3.1% for employers on the first $5 million in wages, providing broad tax relief to all businesses with special targeting to the 98 percent of firms with payrolls below this level.

Temporarily Eliminating Employer Payroll Taxes on Wages for New Workers or Raises for Existing Workers: The President is proposing a full holiday on the 6.2% payroll tax firms pay for any growth in their payrolls, up to $50 million above the prior year, including new hires, wage increases or a combination of the two. . This is the kind of job-creation incentive that CBO has called the most effective of all tax cuts in supporting employment.

Both of these ideas – cutting the payroll tax in half, and eliminating it for new workers - are ones long championed by Dr. Robert Shapiro, the head of the NDN Globalization Initiative, and NDN itself. 

Rob first proposed cutting the payroll tax to stimulate hiring, by reducing the costs of businesses to create jobs, in an op-ed in The New Republic on October 8, 2009, called “What Washington Should Do To Create Jobs.”  At the time he wrote:

“The other measure ……. is a tax break for businesses that create new jobs……Here’s how it works: Businesses would receive a tax credit for the first year of payroll taxes on new employees or those moving from part-time to full-time, and a credit for half as much in the second year.”

He then wrote about this idea and direct cuts in the payroll tax for employers again here, here, here and here and at least seven more times over the last two years.  He has promoted this approach at dozens of public and private forums, including the White House Forum on Jobs and Economic Growth on December 4th, 2009.  Check out the video from the event, starting at minute 31, where Dr. Shapiro and then NEC Chair Chritstina Romer discuss the idea.

In a piece he wrote in August 10, 2011, "The Best Advice to the President: Think Big and Move On," Dr. Shapiro expanded on his original proposal:  

“With persistent, high unemployment, he [the President] needs to show that he knows how to reduce the costs for businesses to create new jobs and preserve old ones.  One direct way to do that would be to cut the employer side of the payroll tax by half.”

The President's "American Jobs Acts" is a smart and timely plan for an economy and country in need of a different economic approach.  The austerity path the country has flirted with this year is tipping the US back into recession.  A new and better approach is needed, one that stimulates growth and hiring while being mindful of the defecit.  The American Jobs Act has those elements, and should be embraced by both parties in Congress without delay.