Payroll Tax Holiday Won't Stimulate Economy

NCPA's Bartlett Says Tax Holiday Idea Worse Than Rebates

WASHINGTON, D.C. (November 29, 2001) – Momentum is growing in the Senate around the idea to create a one-month payroll tax "holiday" as a way to quickly inject money into the stalled economy. Yet according to National Center for Policy Analysis Senior Fellow Bruce Bartlett, while sounding simple, this idea is actually complex, won't work and sets a bad policy precedent. "If the Senate thinks that by suddenly declaring a payroll tax holiday it will happen in time for Christmas shopping, they're seriously mistaken," said Bartlett. "It would take payroll professionals at least six months to make all the accounting and software changes necessary. By then, we may already be out of the woods."

According to Bartlett, even if Congress were able to enact a holiday quickly, it probably wouldn't stimulate the economy anyway. "This would simply repeat the error of the earlier rebates. Economic theory and experience show that people mostly save windfalls. That's why only about 15 percent of the rebates handed out this year were actually spent."

Finally, Bartlett suggested that such a move would be bad public policy that would make saving Social Security, the financially troubled entitlement program, "that much harder."