Sunday, December 18, 2011

Extending the payroll tax holiday for only two months is a good thing

Although all manner of pundits, commentators, and politicians are lamenting that Congress was only able to extend the payroll tax holiday for two months, I actually think this is a good deal since there is a lot of uncertainty about the economic outlook for 2012. Q4 has been shaping up quite nicely, so it is actually unclear whether the U.S. economy will need the payroll tax cut in 2012 at all. On the flip side, Q4 may be a "last hurrah" before we slip into a recession, in which case the economy will need a lot more financial medicine than the limited palliatives that Congress was considering this past week.
In the former scenario, the expiration of the payroll tax holiday will be just fine. And if the economy continues to improve, the fiscal health of the Social Security program will be enhanced by letting the holiday expire ASAP.
In the latter scenario, extending the payroll tax holiday will become a no-brainer, if not as part of an expanded stimulus package.
What's not to like with either outcome?
Okay, sure, from a purely political perspective, somebody "wins" and nobody wants to be the "loser", but from an economic perspective, it will be a win-win.
And even from a purely political perspective, it allows both sides to re-make their political points early in the election season. Another win-win for both sides, although each side will attempt to spin it as a loss for the other side.


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