Ending Payroll Tax Cuts Isn't A Surefire Way To Get Consumers Spending Again

Business Insider

The clock is winding down to Dec. 31 and the fate of the payroll tax cuts is still up in the air. 

If lawmakers decide to let the cuts expire, they could be making a multi-billion dollar mistake, according to economic policy analysts who say consumer spending could help drive the economy out of its hole.

"Payroll tax cuts go, essentially, straight into personal bank accounts, which drive consumer spending,” said Scott Nystrom, an associate economist with Regional Economic Models, Inc.

"And this leads to retail jobs and jobs in the service sector, as well as in their supply chain industries like manufacturing.”

According to REMI's calculations, renewing the cuts would pump as much as $120 billion into U.S. households in 2012 and translate into as many as 450,000 jobs.

It's a winning formula if you're among supporters of the cuts, and if the last few months are any indication, consumers are already chomping at the bit to return to the greener pastures of yester-economy. 

Spending has been on the rise since summer and shoppers drove Black Friday and Cyber Monday sales to record billion-dollar levels in November.

The Obama administration will no doubt champion Nystrom's findings to support extending the payroll tax cut, but relying on consumers alone to lift the economy could be a mistake. Much of holiday shopping goes on credit cards and savvy spenders will spend the beginning of next year paying down the debt they're busy racking up now.

For one thing, popular policies like the commuter transit tax break are still on the chopping block and its fate will undoubtedly impact millions of bank accounts in the new year.

In the meantime, whether an extended payroll tax cut would prompt Americans to hit the malls and boost our economy is pretty much still a guessing game. 

Miss out on Black Friday weekend? See how you can still cash in on deals here > 

More From Business Insider
View Comments (1)