The Payroll Tax Cut Gets Extended Through Year’s End

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Good news for 160 million working
Americans: Congress voted today to extend the payroll tax cut. Both the
House and the Senate passed the measure. And Tom the president is expected
to quickly sign it into law.

TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: Moving very fast on Capitol Hill here Susie, the bi-partisan
deal ends what could have been an intense political fight. Here are the
specifics of today’s measure. The bill extends the current 4.2 percent pay
roll tax through the end of 2012. Without the deal, payroll taxes would
have shot up to 6.2 percent on March first. Also unemployment insurance
benefits will be extended for the rest of this calendar year. The deal also
includes the so-called doc-fix. That avoids a 27 percent cut in payments to
doctors serving Medicare patients.

GHARIB: Our Washington bureau chief has been following the story and
joins us now, Darren Gersh. Darren, nice to have you with us.


GHARIB: All right, so much debate on this topic. So bottom line,
how much does this help the economy and how much does it hurt the deficit?

GERSH: Well, a few deficit hawks, the budget hawks are a very vocal
crew, but they are often ignored. They’re complaining today that this adds
$90 billion to the deficit. Now if you got $15 trillion in national debt
you might say $90 billion, hey, that’s not that much. But the deficit hawks
are saying the signal it sends is that both parties joined hands and
ignored the deficit. So that’s their concern. On the economy it’s
probably best thought of as an insurance policy. It helps out.

GHARIB: Well, how does it help consumers? I mean with more money
in their pockets, will this tax cut make consumers more confident? Will
they spend more?

GERSH: Well, Susie, how are you going to feel if you don’t have to
hear all these headlines, if we don’t have to sit here every night saying
Congress is debating whether or not to give you a tax cut. Congress might
not do it. They’re going to the last minute. I think for consumer
confidence, a lot of this is probably related to the fact that they’re not
hearing about dysfunction in Congress. They’re hearing that Congress is
getting something done. It’s going to help them so I think that’s probably
a large part of impact on consumer confidence.

GHARIB: Now I know you have been talking to a lot of economists as
you have been reporting on this story for months now. What are they telling
you about how this payroll tax cut, you know, will impact the economy?
What does it mean for the economy?

GERSH: You know, it’s kind of mixed. There are some economists who
tend to be on the more conservative side and say hey look, it would have
been better to give this to people in a lump sum – sorry it’s Friday – lump
sum that people would notice in their paycheck as opposed to drips and
drabs. That’s one view. The other view is that basically this does no
harm. If you had taken it away, Mark Zandi at Moody’s (NYSE:MCO) Analytic
says it would have been about a 0.7 percent hit to the economy.

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