The Limits of a Payroll Tax Holiday

A payroll tax holiday might be a big deal to employees, but for employers, the idea just doesn't do enough to convince us to hire new workers.

I still don't really get the call for a (one year) payroll tax holiday.

Up until about 2000, I ran a decent sized, small (about $25-30 million in revenue, 90-100 employees) business for about 15 years. Thinking back, I can't imagine ever hiring anyone due to the ability to avoid paying the FICA obligation on their income for a year. At that time, a sales guy worth his salt cost about $60K a year. Saving $4500 wouldn't have been nearly enough to merit adding someone unless other factors (such as the departure of an existing rep, the possible addition of new a territory or customer base, or an overwhelming surge in demand, etc.) were in place. Even if it was permanent, it wouldn't have been enough.

Now, I understand that a holiday 'on the employee side' (putting an extra $375/month in that $60K/yr guy's pocket) would be a big deal. But if it's only temporary, in today's economic situation, it probably either gets saved or is used to pay down debt (both very good things in my book) rather than spent (and even if spent, it's a short term boost, not a catalyst for self-perpetuating growth).

Of course, compared to what Obama and the Democrats want to do (basically  another AFSCME Relief Act), it's a stellar idea.

Politics aside, what's needed is time and patience. The systemic debt burden is simply too cumbersome (the marginal utility of a new dollar of debt is now well into negative territory) for the economy to grow organically right now. Given time, enough of that debt will be extinguished (not painlessly, of course) so that things will change.

Anything designed to circumvent that process (and I do realize our politicians know no other way) is just kicking the can down the road.