Tax Cuts That Make a Difference

[ProSense]

Tax Cuts That Make a Difference

By DAVID LEONHARDT

It’s time to start talking about a tax cut.

The economy is struggling mightily. Some 15 million people remain unemployed. The Federal Reserve has been slow to act and still is not doing much. The Senate has been unable to find the 60 votes needed to pass anything but minor bills.

The best hope for a short-term economic plan that can win bipartisan support is a tax cut — and not the permanent extension of George W. Bush’s tax cuts, which have been dominating the debate lately. Such an extension is unlikely to win many Democratic votes. Republicans, meanwhile, are unlikely to support more spending, like the national infrastructure project President Obama has been mentioning.

A well-devised tax cut could be different. Cutting taxes has been the heart of the Republican economic program for 30 years, and last year’s stimulus bill showed that Mr. Obama was open to tax cuts.

The question, then, is what kind of cut can put people back to work quickly.

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But the most effective tax cut for putting people back to work quickly is one that businesses and households get only if they spend money. Last year’s cash-for-clunkers program was an example. So was a recent bipartisan tax credit for businesses that hired workers who had been unemployed for months. Perhaps the broadest example is a temporary cut in the payroll tax for businesses, which reduces the cost of employing people.

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