With the deadline looming, the Senate is debating an extension of the payroll tax holiday.
But as the deadline approaches, one thing’s clear: There’s still a lot to learn about what the tax break will do for the economy.
Here are three key points: 1.
The payroll tax cut is a big deal.
The tax break is estimated to boost gross domestic product by $1.4 trillion over the next decade.
That’s enough to lift the U.S. economy out of recession, and that’s not counting the economic benefits to the broader economy from the tax relief.
The impact of the tax cut on employment is big.
A full 3 million jobs will be added during the holiday year, according to the nonpartisan Congressional Budget Office.
That would represent a net gain of roughly 1 million jobs a month over the past six years.
But the jobs gained will come largely from higher-paying jobs, such as sales and administrative jobs, which would be lost if the tax cuts expire.
The Tax Policy Center, a think tank in Washington, D.C., says the tax credit will boost annual GDP growth by about 0.5 percentage points.
That is, the boost from the holiday will translate into an average annual gain of about $1,200 for a typical family of four.
There are real benefits for companies.
The Congressional Budget Board projects that the tax credits will spur the creation of 1.6 million jobs over the year.
That means the economic impact on the economy is likely to be substantial.
But it’s worth noting that the economic benefit from the credits is small compared with the boost to GDP from the $800 billion in payroll tax relief that Republicans plan to add to the federal deficit in coming years.
In fact, the Congressional Budget Commission estimates that the average annual economic boost from payroll tax cuts is only about $400 for the typical family.
The CBO also projects that, by 2021, the tax breaks will provide a net annual economic benefit of about 2.8 million jobs.
That will be the largest annual boost to economic activity since the recession began in 2007.
That boost is estimated at between $700 billion and $1 trillion over a decade.
In addition to providing a big boost to the economy, the payroll holiday would help companies like GE, Google and Twitter.
They have significant operations in the United States, and they will all benefit from an increase in revenues.
For example, Google’s chief executive, Eric Schmidt, said in a recent earnings call that the payroll extension would help boost its revenue by about $200 billion, adding $20 billion to its annual revenue.
Google’s stock price surged by more than 300 percent after the company reported its first quarterly profit in years.
And while the payroll subsidy could boost revenue for GE, its stock price has been hammered since it announced that it would pay $5.4 billion in dividends to employees in 2018.
3) There are some winners and losers.
The unemployment rate has been at or below 4.9 percent for years.
The economy is growing at about a quarter of a percent annually.
Inflation has been below the Fed’s 2 percent target.
But while the tax benefits are large, there are some real losers from the payroll cuts.
The biggest of these are lower wages.
Most Americans currently make less than $24,000 a year.
Some of these people are likely to lose their jobs during the holidays, and some will find themselves out of a job because of the holiday.
Many of these low-wage workers have been unemployed for years, and most of them are also looking for a way to pay the bills.
As a result, the economic loss is likely larger than the economic gain.
For a time, the CBO has estimated that the unemployment benefit could lead to a loss of around 700,000 jobs over a three-year period.
But that estimate is likely low, since the unemployment rate is typically higher in the fourth quarter of each year, so the impact of unemployment benefits will be much smaller than the effect of the other three tax benefits combined.
4) There’s more to the tax holiday than just economic benefits.
Many businesses will see a boost in revenue.
Many consumers will benefit from a lower tax rate.
And most businesses will be able to expand their operations.
There will be more tax revenue from the sales tax relief than the payroll subsidies.
But even the payroll taxes are not the only benefit from tax reform.
Other tax reliefs also help the economy through the holiday season.
For instance, many companies will have more flexibility to expand or hire, while the sales and excise tax will be higher in 2021 and beyond.
These are all important things that businesses should look at carefully, because many of the gains from tax policy can be offset by other types of tax relief, such the extension of unemployment insurance, which could help boost unemployment benefits by $4.6 billion over a six-year span.
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