Economist Mark Zandi told Pennsylvania U.S. Sen. Bob Casey that while the payroll tax cut holiday is effective, the expense of it may require it be scaled back.
Zandi, of Moody's Analytics in Philadelphia, suggested that rather than a two percent cut in how much American workers pay into their Social Security, Congress make it one percent. Or he said Congress could revisit the "Making Work Pay" provision of the 2009 economic stimulus law that provided workers a tax refund of several hundred dollars.
This week, Casey took up the charge of pushing a one-year extension of the temporary payroll tax cut that American workers have been receiving for the last two years. They've been paying 4.2 percent out of their paychecks into Social Security instead of 6.2 percent, which has meant an extra $1,000 or so in the pocket of the average American.
But it also added about $100 billion to the deficit by replacing the lost Social Security revenue with general treasury funds."I think the payroll tax holiday has been very effective. It has a really high bang for the buck," Zandi said. "It is expensive though ... so you may want to consider scaling that back."
Zandi made his remarks during a Joint Economic Committee fiscal cliff hearing on Capitol Hill Thursday morning chaired by Casey. Also testifying was Kevin Hassett, an economist at the conservative think tank, American Enterprise Institute.
Hassett warned against "a cycle of dependence on short term measures," saying it leads to a "kind of downward spiral as the national debt gets bigger and bigger." He argued that the best way to stimulate the economy is to fix "big problems" and said the most successful route would be significantly more spending cuts than revenue increases.
After the hearing, Casey hedged on Zandi's assessment of the payroll tax cuts.
"I think you have to be open to a lot of ideas, not just on this question but on a lot of things, you can't lock yourself into positions," Casey said. "But i think we're still in the early stages of a debate about having a payroll tax cut in place again...if someone has a better idea I'm certainly willing to listen."
Read more about the fiscal cliff hearing in tomorrow's Morning Call.