Thursday, February 04, 2010

Re: the Senate's plan to give tax breaks to employers who hire a previously unemployed worker.

The proposal calls for the employer to save the 6.2% they would otherwise pay as their share of social security taxes of the newly hired worker (interestingly, there isn't a credit for the employer's share of medicare taxes). Normally, hiring a new worker costs the employer not only the base compensation but 7.65% in payroll taxes plus whatever that employer spends on other employee benefits (some employers use a flat 20% as the add-on to an employee's salary to estimate the true cost of hiring a prospective employee).

Thus, the Senate plan means that hiring a $50,000 a year worker wouldn't cost the employer as much as ordinarily would... but it is still going to cost the employer more money than if they simply held staff at the same levels (it's like, to use Obama's non tactful Las Vegas reference, getting a rebate on your casino losses... you might end up losing less money than you otherwise would have without the rebate... but you are still going to lose money, you're going to end up with less than you started).

And why would an employer choose to take on the certain added cost of an additional employee? One reason: they expect and/or hope that sales volume has increased or is going to increase by an amount that justifies the cost of adding staff. No sales increase, no new staff, it's pretty cut and dried... and getting to 'lose' less money is not much of an incentive.

So which employers are going to add staff and take advantage of this new tax break? One answer: optimistic employers who would have added staff anyway, without the incentive of a tax break.

In other words, this is going to be a bonus for employers who were going to hire staff anyway and won't result in a single person being hired who wasn't going to be hired anyway. Well, actually, it will. Since the credit is for workers who have been unemployed, this program will result in a currently unemployed worker getting a boost over a similarly qualified worker who still has a job... but it won't result in a net reduction in the number of unemployed workers. Yes, it won't, try to work it out first before you complain.