Why Are We Even Collecting Payroll Taxes Right Now?

Matthew Yglesias is rightly horrified at the mistaken bipartisan agreement on ending the payroll tax cuts on January 1:

The low interest rates mean that borrowing is an unusually low cost financing option right now, and the depressed state of the economy means that taxes on people’s labor are an unusually costly option right now. Firms need every possible incentive to hire, workers need every possible incentive to accept jobs, and households need every possible dollar of purchasing power in their pocket. And the payroll tax—a broad-based tax that basically all working Americans pay—is an ideal tax to cut. Under the circumstances, the only problem with current payroll tax policy is that the tax is too high. As long as the economy stays depressed and rates stay low, why not cut it all the way down? That serves as a de facto helicopter drop of money on working Americans.

The last thing we need right now is a huge tax increase on wages. With borrowing costs at record lows – negative in some cases – we shouldn’t even be collecting taxes.