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drbob commented on the blog post Obama Administration Seeks Employer-Side Payroll Tax Cut
The CBO reasoning on an employer payroll tax cut is the employer’s predominant response will be a lowering of the prices of their goods. This will encourage purchasing and demand leading to new jobs. So in effect it would act similar to a cut in payroll tax on the employee side.
How they conclude that employers will do this is a mystery since in their same report they say that an employer could also pass on the savings to employees in the form of higher wages(not likely), retain it as profit (more likely), or hire slightly more labor(not likely). Since many companies are not cash poor they already have the luxury of lowering prices if they thought it would spur demand and increase sales and profit-but have not. So its hard to see how the relatively small amount of extra cash from the payroll cut savings changes this equation. Similar experiments in Europe with their value added tax have not worked.
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