Something less bad than it sounds: Payroll Tax Holiday

[Kurt_and_Hunter]

If, and that's a big if, the WH formally proposes some sort of payroll tax holiday I imagine there might be some negative feeling about the fact that the holiday will only for businesses, not for the employees.

There is a reason for that. One doesn't have to like the reason, but at least it isn't a wholly irrational "let's help business and screw workers" thing.

The sort of limited payroll tax holiday the WH would be considering would be presented as a jobs measure, not as a stimulus measure. If we were talking about a way to pump a stimulatively meaningful amount of money into the economy an employee payroll tax holiday is as efficient a way of doing it as any. But anything under $100 or $150 billion would be in the "too small to bother calling it stimulus at all" area.

Reducing the cost of hiring should, in theory, lead specifically to more jobs. This would be our version of the German approach of paying businesses to not fire people.

How many jobs? Depends on the size of the program.

The program would be window-dressing anyway... to small to do much.

But there's a reason it would be aimed only at the business side of payroll contributions.

[Davis_X_Machina]

1. If you think that on DU...

...for a minute, anyone at DU would buy '...but at least it isn't a wholly irrational "let's help business and screw workers" thing' even though you're right, you had the wrong mushrooms in this afternoon's omelet.

I love an optimist.

[elleng]

2. How would it work?

[NYC_SKP]

3. Checking this. So far, the Heritage Foundation hates it...

What the HIRE Act Giveth, the Rest of Obama Agenda Taketh Away
Posted February 24th, 2010 at 3:00pm

The latest attempt by Congress to wrestle the high unemployment rate is the HIRE Act, which is little more than a tax holiday for companies who hire additional workers. Even if this Act works as intended and encourages businesses to hire more workers, which in and of itself is not a guarantee, then other measures undertaken by the Obama Administration have the opposite effect, by actually stifling hiring by business. Some of the measures that counteract intentions of the HIRE Act are the minimum wage increases of the last few years, uncertainty of pending legislation on healthcare and cap-and-trade, and the Davis-Bacon Act that requires government contractors to pay wages that are above the market rates.

The idea behind the HIRE Act is that the payroll tax holiday would reduce the cost of labor for participating companies by temporarily suspending the employer’s share of the Social Security payroll tax, thus coercing companies to hire new workers. However, the impact of such a measure is unclear, since the tax holiday will only be temporary and will have little impact – a qualified employer who hires a worker earning $51,000 annually will receive a subsidy equaling roughly $264 per month. However, these subsidies amount to lost revenue in the Federal Social Security Trust Fund – an institution that even without this additional burden is running a significant deficit.

The minimum wage increases in the last couple of years have contributed to a rise in the unemployment rate. The minimum wage was increased from $5.15 to $7.25 between 2007 and 2009. It is a fact that unemployment goes up as the minimum wage increases because businesses have to pay workers more to keep them employed, and inadvertently not all workers are kept after the minimum wage increases. Congress made their task of decreasing the unemployment rate that is currently hovering around 10 percent more difficult by their actions from several years back.

http://blog.heritage.org/2010/02/24/conflicting-legislation-to-decrease-unemployment-by-the-obama-administration/

But then, 1/12 years ago Mitch McConnell supported the idea:

Sen. McConnell Calls For Payroll Tax Holiday For 1-2 Years

Senate Republican leader Mitch McConnell said on Monday that he would support a payroll tax holiday in the stimulus plan — an idea that in the past has come from Democratic and liberal quarters. Republicans and conservative think tanks have tended to oppose such a move, arguing that a payroll tax holiday would help individuals who do not necessarily pay income taxes. But McConnell endorsed the idea on Monday. "I'd have a payroll tax holiday for a year or two that would put taxes in the hands of everybody who has a job, whether they pay income taxes or not," McConnell told Fox News. "And, of course, businesses pay the payroll tax too, so it would be both a business tax cut and individual tax cut immediately."

http://capitalbeat.com/?p=734

looking for more...

[elleng]

6. Got it; thanks:

'reduce the cost of labor for participating companies by temporarily suspending the employer’s share of the Social Security payroll tax'

Article sure is a hatchet job!

[TreasonousBastard]

4. I don't see the point of it at all...

in fact, I don't see the point in any tax scheme as an employment nudge.

Businesses hire because they have jobs that have to be done, not because they'll get 8% or so of what they pay back from the government. At the moment they are not hiring because revenues are flat or declining and they have learned to increase productivity to where they can get more work done with less people.

One scheme that did work, for a while, was subsidizing wages in severely depressed areas. Specifically, I back in the 80s a company I worked for opened an accounting center in Elmira, NY and the Feds paid bucks for training and subsidized the actual wages. I left the company soon after, so I don't know the long-term effects.

(Nor could I find out how many NYC workers were fired when their jobs went to Elmira.)

[Riftaxe]

5. Holidays end and the bills come due

Why would a small business owner chance the risk of using the extra funds from a payroll "holiday" for hiring additional employees with the full knowledge that the break is temporary and the costs are just being shuffled a bit down the road. A cynic would call it slight of hand at best.

At least a temporary relief of taxes for the employees would likely be spent and the money temporarily boosting the economy.

[provis99]

7. even if he doesn't hire new employees,

being a small business owner, he would spend the money in the economy, even if only to get a new car. That will increase consumer demand, leading to more hiring as production is increased.