But imagine what would happen if we corrected the distortion and shifted the relationship by 30%. Phasing out payroll taxes would cut tax-inflated hiring costs by 17%. Compensating for that with non-labor taxes on resource consumption, waste and pollution totaling 13% would widen the relative price shift between hiring and consumption to 30%. That would send a giant price signal shouting HIRE!

Offsetting tax revenue loss with non-labor taxes makes payroll tax cuts budget-neutral, and stimulates job creation much more powerfully than cutting payroll taxes alone. Instead of 17%, it shifts the relative prices of hiring vs. consumption 30%, and boosts hiring incentive accordingly.

This strategy is known as payroll tax shifting. Dollar for dollar, it’s the most effective thing the government can do to create jobs – much more effective than infrastructure spending.

We estimate it would result in 40 to 45 million new, permanent, full-time equivalent jobs. It’s a fiscally responsible, market-driven employment policy. It shifts the tax burden instead of increasing it. It doesn’t raise the deficit. It creates no bureaucracies, picks no winners or losers, and ends tax distortions in market pricing. That’s why it has supporters across the political spectrum. Smart people in both parties increasingly recognize payroll taxation has become an unsustainable drag on the economy.

In the mid-1930s, payroll taxes accounted for 1 – 2% of federal revenue. Today, it raises a third of federal revenue -- about $1.3 trillion a year. It is by far the largest tax most Americans pay, as well as the most regressive. Yet we have continually raised payroll tax rates as well as the cap on earnings subject to them. The FICA tax cap has risen well over 50% since 2006 (including a $9000 jump in 2023). Over time, runaway growth in payroll taxation has discouraged employment, encouraged aggressive exploitation of natural resources, and caused deep structural imbalances in our economy that are overdue for correction.

A tax policy study by the OECD found that cutting payroll taxes reduces hiring costs and increases labor demand, which is why other industrialized countries have cut them to create jobs.

We can, too. GAW analyzed over 20 possible federal non-labor taxes and tax expenditure reductions. We found that at modest rates, various combinations of them could easily generate the $1.3 trillion payroll taxes raise today.

Making that shift would powerfully stimulate employment.  It would also strengthen Social Security and Medicare because it would lead to sustainably higher economic growth and provide these programs with expanding tax bases.

Payroll tax shifting can unleash labor demand in the U.S., bring tens of millions of marginalized Americans into the labor force, and spread prosperity beyond the 20% wealthiest zip codes. It can do this without raising deficits or net taxes, while boosting economic growth, slashing government dependency costs, growing the tax base and promoting fiscal health. In fact, it’s the only tax reform proposal that can.