Nouriel Roubini - What America needs is a payroll tax cut
But the Federal Reserve has little ammunition left to boost growth or fend off a slump. And the federal deficit has reached such levels that additional spending of the kind that helped kindle the mini-recovery of early 2010 looks unwise.
In the midst of an election with crucial implications for its ability to govern, can the Obama administration reduce the likelihood of a “double dip”?
The administration knows that it needs to fashion a revenue-neutral fiscal stimulus that increases labor demand and consumption. Its proposal to make permanent a research and development tax credit that dates to the 1980s, and then to enact a temporary investment tax credit allowing firms to write down capital investments at 100 percent of cost, are welcome — but too modest a cure for what ails the economy.
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).