The administration knows that it needs to fashion a revenue-neutral fiscal stimulus that increases labor demand and consumption. Its proposal to make permanent a research and development tax credit that dates to the 1980s, and then to enact a temporary investment tax credit allowing firms to write down capital investments at 100 percent of cost, are welcome — but too modest a cure for what ails the economy.

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years)…

President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. Meanwhile, the Bush-era cuts affecting middle- and low-income earners — the vast majority of Americans — would remain in place for the time being.