James Kennedy contributed to this post.
Earlier this week, we stressed that the relationship between addressing our short-term sluggish economy and long-term debt reduction for fiscal sustainability is not as contradictory as many politicians and pundits would have us believe. The fact is that the two goals are closely related, and they should be dealt with in tandem.
The BPC’s Debt Reduction Task Force has made very clear that the debt problem is too large to be solved through spending cuts, tax increases, or growth alone. All three legs of the proverbial stool are necessary in order to get America back on sound fiscal footing. Actions to directly reduce the deficit can and should be paired with immediate measures to increase employment and revitalize the economy.
That is why the Debt Reduction Task Force proposed a one-year Social Security payroll tax holiday in conjunction with its plan to curb our debt. As a result of the employee FICA holiday, more money would go into workers’ pockets, leading to more consumer spending and demand, and therefore more money for businesses, which could then increase hiring, and so on. Moreover, the FICA holiday for employers would directly lower the cost of hiring a new employee as well as save businesses substantial money on their existing staff.
A report released last year by the non-partisan Congressional Budget Office (CBO) has not received enough attention of late. The agency analyzed the effects of a payroll tax holiday, and based on the findings, we have estimated that the full one-year tax holiday would create between 2.5 and 7 million new jobs over two years. (These calculations were based on figures from last year – the most recent available – but given our current economic conditions, they are still highly relevant.) This policy would also produce a significant boost in growth, according to the CBO report.
Simply waiting years and years for the economy to return to full employment can have detrimental effects, even in the long run. Many studies have shown the negative ramifications that long-term unemployment can have both on the individuals, as their skills deteriorate, and the economy as a whole, potentially dampening long-term economic growth.
Both parties should be able to support a measure that will address two of Americans’ foremost concerns at the moment – jobs and growth – if (and we can’t stress this enough – only if) it is paired with a serious package to rein in the mounting federal debt, or a strong mechanism to force deficit-reduction like the Save-as-you-Go, or SAVEGO, mechanism.