Memo To Gretchen Carlson: Economists Say Cutting Payroll Tax Would Boost Employment, Economy


Fox & Friends co-host Gretchen Carlson suggested cutting payroll taxes has no effect on employment, claiming that she had spoken to "tons" of economists on the subject. In fact, economists agree that cutting the payroll tax would improve the employment situation and benefit the economy.

Carlson Suggests Economists Claim Payroll Tax Holiday Has No Impact On Employment

Carlson Claims She Has Spoken To "Tons" Of Economists While Downplaying Employment Impact Of Payroll Tax Holiday. During an interview with White House press secretary Jay Carney on the September 8 edition of Fox News' Fox & Friends, co-host Gretchen Carlson downplayed the employment impact of a payroll tax holiday, claiming that "[w]e've already had that," and "I see dismal [job] numbers." From Fox & Friends:

CARLSON: We'll see if Congress does rally around the president based on what he says tonight. But let me ask you this. Why go before the joint session of Congress if you're going to say stuff that the American public has already heard time and time again in 10 to 12 speeches before? Why say I'm going to go on vacation for a month, and then I'm going to come back and give this grandiose speech --

CARNEY: Wait, wait, wait, wait, wait -

CARLSON: -- if it's going to be the same exact thing that they've already heard?

CARNEY: Gretchen, I'm not sure what -- whose talking points you're reading here, Gretchen --

CARLSON: So please tell me what new thing is the American public going to hear today. What new thing will the American public hear tonight from your boss?

CARNEY: The American people will hear a lot of new ideas. I want to correct you. The folks who went on a month-long vacation weren't the president, it was the Congress. Secondly, the American people will hear a lot of new and innovative ideas that they haven't heard before. They will also hear very common-sense, sensible ideas like a payroll tax cut for every working American that has tradition --

CARLSON: We've already had that. That's not new.

CARNEY: Oh, and is that a bad thing?

CARLSON: No. Well, did it create jobs?

CARNEY: I'm sorry, is that a bad thing because it creates jobs? And it grows --

CARLSON: Did it create jobs?

CARNEY: Absolutely.

CARLSON: When I look at the June job report and the July job report and the August job report, I see dismal numbers.

CARNEY: Gretchen, I'm not sure if you've talked to any economists, but there is not an economist --


CARNEY: -- whose Ph.D. is worth the paper it's printed on who does not agree that when you cut the payroll tax, it has a direct impact on economic growth and job creation. If you're asking me if there were other headwinds that affected this economy, like the tsunami in Japan, like the Arab uprising that affected oil prices and the situation in Europe, that's absolutely the case. But cutting taxes, I used to think --

CARLSON: Yeah, Mr. Carney, with all due respect, we've heard all of those excuses before. [Fox News, Fox & Friends, 9/8/11]

In Fact, Economists Agree With Carney That Cutting Payroll Tax Has A Positive Impact On Employment And Economy

Frank: "Perhaps The Most Promising" Policy To Reduce Unemployment "Is A Payroll Tax Holiday." In a June 25 New York Times op-ed, Robert Frank, economics professor at Cornell University, wrote:

If the economy could generate jobs at the median wage for even half of these people, national income would grow by more than 10 times the total interest cost of the 2011 deficit (which was less than $40 billion). So anyone who says that reducing the deficit is more urgent than reducing unemployment is saying, in effect, that we should burn hundreds of billions of dollars worth of goods and services in a national bonfire.

We ought to be tackling both problems at once. But in today's fractious political climate, many promising dual-purpose remedies -- like infrastructure investments that would generate large and rapid returns -- are called unthinkable, in the false belief that they would impoverish our grandchildren. Yet there are other ways to attack unemployment that could garner bipartisan support.

Perhaps the most promising is a payroll tax holiday. The payroll tax was originally meant to pay for Social Security, and in recent years, employees and employers have each contributed 6.2 percent of total salary -- with no additional levies on salaries beyond $106,800. Congress should both declare an immediate payroll tax holiday for employees and exempt employers from making contributions for newly hired workers -- and keep both provisions in effect until the end of next year. [The New York Times, 6/25/11]

Seidman: "To Boost Private Sector Spending And Jobs," Congress Should Implement An "Immediate Suspension Of The Entire Employee Payroll Tax." In a July 17 op-ed in Delaware's News Journal, University of Delaware economics professor Laurence Seidman wrote:

To boost private sector spending and jobs, any budget deal negotiated by the president and Congress should contain an immediate suspension of the entire employee payroll tax through 2012.

Why? Because leaving more money in people's paychecks will cause them to spend more, and in response to their spending, private sector employers will expand production and create private sector jobs. Without this stimulus to the private sector, the economy is likely to fall back into a deep recession.


According to the simulations, if the suspension begins promptly, then in the fourth quarter of 2012 the unemployment rate would be 1 percentage point lower than it would have been without the temporary employee payroll tax suspension. [News Journal, 7/17/11, accessed via Nexis]

Tyson: Jobs Plan Should Include "At The Very Least" An Extension Of "The Temporary Payroll Tax Cut For Employees." In a September 6 post on the New York Times' Room for Debate blog, University of California, Berkeley professor and former Council of Economic Advisers chairwoman Laura Tyson wrote:

The labor market is suffering from two problems: first, an immediate jobs gap, primarily the result of the collapse in demand after the 2008 financial crisis, and second, a long-term gap in rewarding jobs for American workers, primarily the result of skill-biased technological change and global competition.

The jobs gap requires additional fiscal measures to increase private spending and promote job creation. At the very least, the temporary payroll tax cut for employees enacted at the end of 2010 should be extended and a temporary payroll tax cut for employers that increase their payrolls or a tax credit for new hires should be introduced. [The New York Times, 9/6/11]

CBPP: "Failure ... To Extend The Temporary Payroll Tax Cut" Would Remove "Needed Support From The Still-Weak Economy." In a September 7 post, the Center on Budget and Policy Priorities (CBPP) noted: "Failure by Congress to extend the temporary payroll tax cut enacted last December would reduce all paychecks starting on January 1, withdrawing needed support from the still-weak economy." From CBPP:

Failure by Congress to extend the temporary payroll tax cut enacted last December would reduce all paychecks starting on January 1, withdrawing needed support from the still-weak economy. The measure, part of the tax cut-unemployment insurance deal between President Obama and Republican leaders, reduces the employee share of the Social Security payroll tax, boosting workers' take-home pay by an estimated $120 billion in 2011. The tax cut is worth $934 to the average worker.


By extending the payroll tax cut -- and the provision of additional weeks of unemployment benefits to workers who have exhausted their 26 weeks of state-funded UI benefits without finding a job -- policymakers can avoid increasing the risk of renewed recession. But they should do more to reduce the probability of a double-dip recession and increase the probability of a sustainable recovery that generates sufficient jobs to shrink the massive jobs deficit. While a discussion of various steps needed to shore up the economy is beyond the scope of this paper, in the payroll tax arena, policymakers should consider strengthening the payroll tax reduction as part of a larger set of economic measures. [CBPP, 9/7/11]

Roubini: "What America Needs Is A Payroll Tax Cut." In a September 17, 2010, Washington Post op-ed, Nouriel Roubini, professor at the New York University's Stern School of Business, wrote:

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).


Low-income workers have historically shown a much higher propensity to consume when given extra money, so the payroll tax cut should be designed to provide a larger-percentage break to those on the low end of the income scale compared with the upper middle class. [The Washington Post, 9/17/10]

Krugman: Payroll Tax Cut Would Give Money To People "Who Might Very Well Spend It." An August 30, 2010, CNBC article quoted Nobel Prize winning economist Paul Krugman as saying:

"If you give a temporary tax cut to wealthy people who are likely to be highly liquid, they are not going to spend very much of it at all," Krugam [sic] said. "Give a temporary tax cut to corporations, who are sitting on piles of cash, they are not going to spend any of it."

A payroll tax cut would be better, since it would put money in the hands of people "who might very well spend it," he added. "But basically, I would take whatever we can, except that those high end tax cuts, corporate tax cuts, are going where the problem isn't; it's just a waste of money," Krugman said. [CNBC, 8/30/10]

Reich: Eliminating Payroll Tax Would "Get The Economy Moving Again." In an August 25, 2010, interview on America Public Media's Marketplace, former Secretary of Labor Robert Reich noted that eliminating payroll taxes would "get the economy moving again." From Marketplace:

But here's an idea that might command everyone's support: Eliminate payroll taxes on the first $20,000 of income. Payroll taxes, you recall, include Social Security, Medicare and unemployment insurance. Make up the revenue loss by applying the payroll tax to incomes above $250,000.

This would immediately stimulate spending by adding to the paychecks of just about every working American. Right now, 80 percent of Americans pay more in payroll taxes than they do in income taxes. And lower-income workers, who would receive the largest proportion of the benefits, are more likely to spend the extra cash than are people with high incomes.


So how to get the economy moving again? Eliminate the payroll tax on the first $20,000 of income and apply it to income over $250,000 for two years.

How to keep the economy moving? Do this permanently. [American Public Media, Marketplace, 8/25/10]

Orszag: "To Mitigate The Harm To The Labor Market From ... Fiscal Drag, Policy Makers Should" Extend "The Existing Payroll Tax Holiday." In a June 30 Bloomberg column, former Office of Management and Budget director Peter Orszag wrote:

Given our feeble labor market, it is particularly important that policy makers avoid overly hasty deficit reduction. Official projections for the federal budget show fiscal tightening in excess of 2 percent of GDP from fiscal year 2011 to 2012. To put that percentage in context, consider that the fiscal tightening in the U.K. from 2010 to 2011 -- which has received so much attention in the news media -- amounted to less than 1.5 percent of GDP.

To mitigate the harm to the labor market from this fiscal drag, policy makers should provide additional macroeconomic support in 2012 by extending the existing payroll tax holiday. But more than that, Congress should link the payroll tax to the unemployment rate. This would allow the tax holiday to automatically calibrate itself to existing conditions, providing support only when the economy is weak. If necessary, the underlying payroll tax rate could be raised to make this mechanism budget-neutral. [Bloomberg, 6/30/11]

Posted In
Economy, Jobs, Wages, & Unemployment, Taxes
Gretchen Carlson
FOX & Friends
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