RSS Feed MenuAn especially elegant version of the payroll tax cut.
Starting immediately after enactment, any private-sector employer that hires a worker who had been unemployed for at least 60 days will not have to pay its 6.2 percent Social Security payroll tax on that employee for the duration of 2010. The Social Security trust fund will then be made whole with spending cuts elsewhere in the budget between now and 2015. That’s it. Simple to understand, and easy to explain.
The beauty of this proposal goes beyond its simplicity. Unlike a jobs tax credit of a specific dollar amount, this credit is “front-loaded” in that it provides an incentive for businesses to hire workers earlier in the year — because the tax benefit will be greater. A $60,000 worker hired on Feb. 1 will save a business about $3,400 in taxes, while that same worker hired on May 1 will save it about $2,500.
Unlike some versions of a payroll-tax holiday, which provide a much bigger benefit for higher-paid workers, this proposal is not biased toward either low-wage or high-wage workers. Yes, if you pay people more, you save more in taxes — but the savings as a percentage of pay remains constant. Under this plan, a business saves 6.2 percent on both a $40,000 worker and a $90,000 worker.
In the current environment, no business wants to wait until 2011 to receive a tax credit for someone it hires today. Another obvious benefit of this proposal to forgive payroll taxes is that it keeps money in a business’s pockets, since the tax is simply not collected in the first place.
All the more urgent at a time when CBO chief Doug Elmsdorf is now projecting that unemployment will hover near 10% for all of 2010, and that it will take four years for unemployment to subside to 2007 levels.
sinz54 // Jan 27, 2010 at 5:43 pm
For over a year, whenever we conservatives proposed some type of SS payroll tax cut to stimulate the economy, the liberals instantly attacked it as a poor stimulus. Including right here on FrumForum (when it was still called New Majority).
Now we have Sen. Schumer, who due to his representing New York has to understand something about private-sector investment, proposing essentially the same thing.
While Obama proposes a $250 billion cut in discretionary spending.
Fine with me. I’ll be happy to salute these two liberals for copying our ideas.
As Reagan once said: You can accomplish a great deal, if you don’t care who gets the credit.
balconesfault // Jan 27, 2010 at 6:08 pm
So companies which have been willing to cut profits, or even operate at a loss, in order to avoid laying off workers … will now be at a competitive disadvantage to companies which aggressively reduced workforces and can hire new employees with a tax benefit.
Way to reward those companies which have cut executive perks, tightened their belts on entertainment and other secondary expenses, and instituted other cost savings measures in order to do right by their employees. In certain labor-intensive areas this could allow them to be underbid by the firms who did what was worst for our economy.
Makes good press, though – since analysts will uniformly ignore this flaw/feature.
sinz54 // Jan 27, 2010 at 7:31 pm
balconesfault: So companies which have been willing to cut profits, or even operate at a loss, in order to avoid laying off workers … will now be at a competitive disadvantage to companies which aggressively reduced workforces and can hire new employees with a tax benefit.
Hitherto, that hasn’t been much of a problem, this side of Ben & Jerry’s.
The number of companies which are willing to operate at a loss in order to avoid laying off workers can probably be counted on the fingers of one finger.
Even American companies whose names used to be synonymous with lifetime employment, like IBM, have had massive layoffs in the last 10 years, as globalization has bid down the wages of American workers.
The only reason why European companies take a financial hit rather than laying off workers is that the European governments force them to operate that way, giving workers reduced hours instead of pink slips.
oldgal // Jan 28, 2010 at 9:20 am
As my parent’s used to tell me, “Life is not fair, deal with it.” I doubt there is any legislation that has ever been passed that is not seen as unfair by someone. The companies who avoided layoffs most likely benefit from high morale and employee loyalty which will probably serve them better over the long run than the tax breaks for new hires gained by companies with massive layoffs.