Let me tell you how it will be

There's one for you and nineteen for me

Cause I'm the tax man

Yeah I'm the tax man

Tax man- The Beatles

Except over here it looks like the tax-man has to wait since the US is going extend the Bush-era tax cuts for another year.

Nice quick read on payroll tax cuts: Mulligan argues that the presence of sticky wages makes the payroll tax cuts more meaningful for employers than for employees since it effectively lowers the firm's hiring costs. The firm seeing lower hiring costs, is thus able to hire more workers.

Will that help the unemployment situation here?

Cue the famous S,S model again and the number of firms sitting in the range of inaction. I always feel that everyone should read Nick Bloom's "The Impact of Uncertainty" paper to get a sense of how investment incentives do not always have a desired impact on the economy. Bloom, in his paper, shows that along with first moment shocks, second moment shocks matter too! A negative first moment shock would imply that the distribution of firms is shifted leftward, into a more negative region (so each firm is facing lower demand and less profitable conditions).

A second moment shock implies that with the shape of the distribution of firms is associated with the level of uncertainty in the economy. Essentially, the range of inaction (the wait and see behavior of firms) expands under second moment shocks.

So in a nutshell, the quote below from an NYT article summarizes the main idea quite neatly.

" Businesses are sitting on more than a trillion in cash, but are reluctant to invest because of lagging demand, a problem that tax incentives are not devised to address."

Perversely, this sometimes means that the tax incentives work best in good times when firms are responsive to breaks. In contrast, the continuing uncertain business climate suggests that all these breaks may not do anything for unemployment now since firms are just sitting tight. Politically, i suppose it still looks good for individuals to know that their government is doing something....