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Will Congress really let the payroll tax cut expire?

By on October 13, 2012

Business Insider highlights a report from Jan Hatzius at Goldman Sachs that seems baffled by the seeming absence of efforts by lawmakers to extend the payroll tax cuts that were passed to support the economy during and after the recession.

From the report: “We are surprised that neither party has seriously challenged the case for near-term fiscal retrenchment. In particular, the expiration of the $126bn payroll tax cut (1% of disposable income) is almost universally accepted. This expiration alone is likely to shave 0.6 percentage point from 2012 growth on a Q4/Q4 basis—the same order of magnitude as the estimated boost from QE3—at a time when investors are lining up to finance US government expenditure at a real 10-year yield of -0.8%. While we agree that the US government will ultimately need to tighten its belt, a big move in a restrictive direction still looks decidedly premature to us.”

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