The legislative debate on extending the payroll tax cut will garner much press today, as the Republicans are excoriated for getting in the way of helping out workers.
Today's WSJ has an interesting op-ed piece by John B. Taylor, arguing otherwise. Among the points he makes is that a temporary tax cut does little to help the economy. When was the last time any of us made an investment decision i.e., buying a new house, based on having an additional couple of months' payroll tax to help with the cash flow?
Uncertainty is the nemesis of investing, and consumers want to know what they will be paying in taxes long term before embarking on any major purchases. We are amazingly adaptable as consumers, so long as we know the rules.
A sluggish economy will be with us, unfortunately, until we have a clear idea of permanent tax and regulatory issues. Businesses are reluctant to hire, citing weak demand and unpredictability. Demand will stay weak until consumers feel more certain about the economy. It's a vicious cycle, and something has to break for things to get better.