I don’t see any wisdom in another payroll tax cut. Perhaps I’m too unsophisticated to see the way around these obvious problems I see everyone collectively ignoring:
* It further balloons the structural deficit, bringing what was once described with unintentional hilarity as a “long-term” problem and is now described as a “medium-term problem that much closer to term.
* It creates further inevitable fighting over whether it’ll become permanent.
* By virtue of being temporary, it loses a big chunk of its supposed stimulative oomph.
* It sets up yet another ridiculous political fight, whereby, at their most sensible, the Republicans would argue for a cut on the business side, and then be pilloried by Democrats for turning a tax cut on “workers” into a tax cut on businesses”.
* Even notwithstanding all of those show-stopping problems, it’s extremely doubtful to me that the empirics are on its side. It won’t help employ “millions” of currently unemployed workers. Certainly not in the current monetary policy environment.
* Bonus: consider where the labor market is really slack. Unemployment among highly skilled workers is about 5% and among low skilled workers is something like 15%. Over the last few years, we’ve driven up the minimum wage by over 20%, and the looming effects of the Obamacare legislation are projecting to add another 50-75% on top again over the next couple years. In that context, I don’t see how anyone can think a 2% reduction in the payroll tax, obtained at great expense in terms of regulatory, political, and long-term economic costs, makes any sense at all. It's pissing in the wind at the absolute best. I should also note that was by far the best proposal in his speech last night.
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