Wednesday, February 10, 2010

Nice Job If You Can Get It

(h/t Andrew Sullivan)

Congress still not getting it.

The Hill:

The Senate could introduce a $104 billion jobs bill shortly that includes a payroll tax credit for businesses that accept new hires between Feb. 3, 2010 and Jan. 1, 2011. The provision emerged from a proposal by Sens. Orrin Hatch (R-Utah) and Charles Schumer (D-N.Y.) and is similar to the suggestion by President Barack Obama to give businesses a $5,000 tax credit for each new worker added to its payroll.

A draft of the bill also calls for a $1,000 increase for hiring-related tax credits. To qualify, workers must be hired in 2010 and be employed for at least 52 consecutive weeks. The credit cannot be used in years prior to the bill’s enactment. But the draft offers no guidance on applying unused portions of the credit to future years, indicating outlays for the bill could extend beyond the current year.

The bill is presently expected to cost $85 billion the first year and $19 billion the second year. But lobbyists say Senate leaders want to trim its price tag to win Republican support for the legislation.

Tax credits, tax cuts, tax fairies and Republicans will save us all. We really are ruled by idiots.

I am Frank Chow and I approved this message


sterno said...

To illustrate the stupidity of this, consider what this would mean if you owned a restaurant. You have, let's say, two waitresses working a particular shift. They aren't overworked, and they are providing quality service to your patrons.

So the government comes along and says that if you hire one more waitress they'll give you money off of your taxes. However, the problem is, you're going to need to pay some money for that additional worker regardless. So unless you have a real need, the tax benefit is worthless.

So the only way that tax change can benefit you is if you were already seeing your business growing. If the businesses are growing then they'll be hiring anyhow, so the incentive is rather wasted.

Chicken? Egg? Who wants an omlette?

Paddy K said...

Yet again, lowering taxes is expected to fix everything. I wonder how many small businesses would actually take the bait. For this to make sense, the tax credit would have to be big enough to not only cover the new worker's salary, but to cover other expenses associated with taking on additional workers. The firm is then gambling on whether or not they will be growing at a rate to cover that new worker in a year's time, leading to temporary contracts.

A point of clarification: just because business activity is growing does not necessarily mean you can afford to hire on new workers. If margins pre-recession were very large and businesses have now squeezed the margins to preserve a minimum level of jobs and meet costs, business activity may have increased (along with productivity per worker) after cost-cutting; hiring on new workers may not yet be an option although overall business is growing again. A tax credit MIGHT give a firm the extra breathing room to hire on more workers. MIGHT... but it depends on the size of the tax credit.

So... what's the alternative? Admittedly, I'm no expert on labour economics, but what would be an acceptable plan for you guys? Great Depression-style public works?

Asian-American Pundit said...

@Sterno @PaddyK

You both share my concerns and from what I read other economists as well. The point of a jobs bill in my opinion should be putting people to work. Not "encouraging" businesses to hire...

We are still not in a full recovery of any kind. And as the chart shows we lack jobs for those who are unemployed.

@Paddy K, Yes a public works program as initially proposed early last year in the form of stimulus would be our best bet. Politically the reality of that is probably zero, however it doesn't seem Congress has any grasp of the actual issues Americans are facing.

People need work. People are out of work. Put them to work.

9% unemployment at the end of this year as projected by the administration is unacceptable. No one will win in 2010 if that ends up being fact.

(not had my coffee yet apologize if anything is unclear)