In yesterday's Wall Street Journal, Michael Boskin made the case for a payroll tax cut:
My Stanford colleague Pete Klenow and Rochester economist Mark Bils estimated that cutting the payroll tax by six percentage points (of the 12.4% Social Security component) would, under standard assumptions, increase employment by three million to four million workers-an amount equal to all the job losses since the stimulus was passed. The payroll tax cut would have reduced firms' costs by roughly the same amount as from the entire decline in employment. It would have cost less than half as much as the stimulus bill, gotten far more income into paychecks quickly and, most importantly, greatly reduced incentives for firms to lay off workers. In fact, it would have created incentives to hire. Even using the administration's claims of one million jobs "created or saved," the stimulus program passed in early February is millions of jobs short of what a cheaper payroll tax suspension would have delivered (see nearby chart).
Interestingly, Sarah Palin also has some kind words to say about the payroll tax cut in Going Rogue: "And if we really want to help the poor and middle class get through this recession, how about cutting their payroll taxes?" Sounds good to me!