Payroll Tax Cut Expiration Removes Support for the Economy

AMHERST, Mass.--(BUSINESS WIRE)--

Regional Economic Models, Inc. (REMI), the foremost provider of dynamic economic models for policy analysis, announced this morning a reaction to the potential expiration of the payroll tax cut. President Obama and Congress originally enacted a reduction in the employee portion of the payroll tax to boost consumer spending to aid economic recovery, but the measure will sunset at the close of the year without further action.

Using the REMI PI^± economic model and accounting for savings and imports, Scott Nystrom, Associate Economist, calculated that the cut could funnel about $120 billion back to households in 2012. This is enough to support up to 450,000 jobs and $30 billion in additional gross domestic product. “Payroll tax cuts go, essentially, straight into personal bank accounts, which drive consumer spending,” said Mr. Nystrom, “and this leads to retail jobs and jobs in the service sector, as well as in their supply chain industries like manufacturing.”

Personal consumption expenditures account for over half of the American economy, and helping them could strengthen the job market or prevent another recession. The current payroll tax cut is large enough to potentially add 0.25% to GDP and employment numbers in 2012, assuming no other policy changes or more economic troubles in Europe or Asia.

“In the short-run, the payroll tax reduction should create a short-term boost to the economy and provide a shot in the arm to consumer spending,” said Dr. Mark D'Amato, Senior Economist, “for the policy to be more than a flash in the pan, however, other long-term, structural issues in the economy and our long-term fiscal position need some addressing.”

About Regional Economic Models, Inc.

REMI, Regional Economic Models, Inc., is a leading provider of economic models and policy analysis at the civic, state, regional, national, and global level. Since 1980, REMI has enabled its users to answer the “What If?” questions involving economic development, demography, energy, the environment, transportation, taxation, forecasting, and regional planning. REMI models see use in all levels of government, academia, and in public utilities, all of which utilize their model to create realistic, year-by-year estimates of the total effects of public policy initiatives on the economy and population. REMI models are custom-built for regional analysis, based on geography and level of detail, and they incorporate numerous analytical methodologies.