The Case for a Payroll Tax Cut

For the econonerds out there, here is a more complete analysis of the Bil-Klenow stimulus plan. Journalist Michael Kinsley makes the case too, while confirming his membership in the Pigou Club.

How about an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax? Make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.

Okay, I have to work on the marketing.

Update: Gauti Eggertsson makes the case against supply-side tax cuts in the current environment. But note the caveat that if the tax cuts increase aggregate demand, they are okay in his model as well.