Cornell University

February 27 2012

Good News

New payroll tax cut will help economy grow, Bishop says

The payroll tax cut extension signed into law this month is good news, but not a giant step forward, according to ILR Associate Professor John Bishop.

"It means that policy changes will not pull the rug out from underneath the economy. Taxes will not go up." That, he said, is "good."

"The 5.5 million long-term unemployed will not be told, 'tough luck, even though you may have been paying unemployment insurance taxes for the past 25 years, we only pay unemployment insurance benefits for six months.' That's good, as well."

"Total payroll employment is still 5.5 million below its level in December 2007," said Bishop, an economist.

And, the window for a payroll tax cut's biggest impact might have already passed, he said in an interview.

A proposal that failed to receive congressional support last fall stipulated small firms that increased total employment and wages would not have to pay Social Security taxes on the increase in their wage bills, Bishop said.

"On its own, this inexpensive proposal would have created more than two million jobs and lowered the unemployment rate by at least one percentage point."

The payroll tax cut extension signed into law Wednesday by President Barack Obama was passed last week by Congress. Many hope it will shore up the nation's fragile economy.

The tax cut includes measures:

  • continuing a reduction in the tax that funds Social Security
  • extending jobless benefits for between 63 weeks and 73 weeks
  • averting a reimbursements cut received by doctors treating Medicare patients.