Chuck Schumer, probably the Senate Democrats' next leader, and Republican Orrin Hatch have an interesting proposal for a payroll tax cut in today's New York Times. They want to suspend employer payroll taxes in 2010 for workplaces who hire employees who have been out of work for more than 60 days. Lost revenue would be made up by cutting other programs. If the employee remains on the payroll for a full year, "the employer would receive an additional $1,000 credit on its 2011 tax return."
It's nice to see the principle of payroll tax cuts gaining support among Senate Democrats, especially someone as savvy as Schumer. That said, the proposal seems too targeted and short-term to have any durable impact. A permanent reduction in the payroll tax would likely give a greater jolt to the economy.
To have the greatest impact and restore certainty to the market, however, Obama could announce in his State of the Union address tomorrow that he plans to veto any tax increases until unemployment falls below 8 percent. True, the left would go nuts--but they're going nuts anyway! And besides, now that it's gone the way of the dodo, Obama needs something to replace the paragraph dealing with the budget commission. Automatic enrollment in 401(k) plans is a good idea, but it doesn't quite put fire in the belly.