Businesses Need to Make Sure Payroll Tax Doesn't Increase

AFTER what seemed like an interminable slog, the American election season has finally ended—just in time to deal with the “fiscal cliff”. Among the many reasons to fear the coming of winter, America will cut spending and raise taxes to the tune of nearly 5% of GDP unless Congress intervenes. Unless you assume, against all evidence, that the fiscal multiplier is close to or below zero, this will serve as a nasty brake on an already anemic recovery. Fortunately, there is good reason to believe that the bulk of these austerity measures will be avoided, as my colleague reports below. Despite this relatively good news, there appears to be a troubling consensus among both parties that payroll taxes, which disproportionately hit the American middle classes, will rise at the end of the year irrespective of any other deal regarding the “cliff”. Congress would do well to prevent this tax increase. Moreover, profit-maximising businesses ought to be leading the lobbying effort.