David Frum

02.20.13

Cut the Payroll Tax, Help Working Class Americans

Let's add this to the pile of reasons a permanent cut to the payroll tax will help the working class:

Their customers’ money—some of it—has gone back to the government, in the form of the two-per-cent increase in payroll taxes that took effect with the new budget deal on New Year’s Day. That deal supposedly allowed the economy to avoid going over the “fiscal cliff,” and its aversion was a source of much relief in Washington and on Wall Street. But there turned out to be, if not a cliff, at least a gulch still embedded in the deal. It’s amazing how little attention the payroll-tax increase got at the time—maybe because so few of the players and observers involved could imagine how much difference fifteen dollars out of the weekly paycheck of someone earning forty thousand dollars a year could make.

It made enough difference to send Walmart’s earnings into a temporary free fall. A payroll-tax cut had been part of President Obama’s stimulus package, renewed once and always intended to be part of a short-term kick-start out of the recession. The Administration and Congress have overestimated the recovery countless times—was the end of the payroll-tax cut one more example? Walmart’s customers needed that fifteen dollars more than most Washington politicians and Apple Store shoppers might have guessed.