The payroll tax cut is designed to be temporary—which is one of it’s biggest defects. But Mike Konczal at Rortybomb points out that politics may cure this defect:
“It’s clear that it would be an ugly battle to raise this payroll tax in 2012 when unemployment will likely be 8%+,” Konczal writes. (Note: this is leading Konczal and other liberals to worry that the payroll tax cut might be a bad idea.)
This is a point I haven’t taken into account yet. It raises the possibility that the payroll tax actually could lead to more spending—if the public believes that it will be made permanent and therefore create a permanent increase in income. I’m still not convinced this would happen, however, because I suspect the appetite for savings and develeraging exceeds the actual ability of cash-strapped households to save.
There’s a deep irony here. The payroll tax cut might work as intended—encouraging spending—but only if the public believes that it won’t be as limited as the Obama administration plans.