Bipartisan Proposed Job Bill Won't Create Jobs

On February 3, 2010, Democratic Sen. Chuck Schumer and Republican Orrin Hatch released a bipartisan proposal aimed at creating jobs. The Hire Now Tax Cut Act of 2010 is intended to encourage employers to hire the unemployed by subsidizing the employer's share of the newly-hired employee's social security tax for 2010.

The subsidy would reflect a 6.2% savings over the total cost of an employee who does not qualify under the proposed legislation, or who is already employed. To qualify, the new hire must have been out for work for at least 60 days prior to the commencement of employment. Lastly, the business would receive a $1,000 tax credit if the employee is kept on for 52 weeks.

There are also some extensions proposed: The deadline for filing for unemployment benefits and the Cobra health insurance subsidy until May 31, 2010; the small business loan guarantee and the Build America Bonds program from the stimulus bill; federal funding for highways; and multiple expiring tax credits.

Despite there being some other less important provisions tucked into the bill, the subsidy for newly-hired employees is certain to garner the most attention.

While this particular provision is likely to decrease the payroll tax liability of some businesses, it is unlikely to create a significant number of jobs. Having the federal government pick up 6.2% of the cost of adding a new employee will not be enough for businesses who are not already in position to do so.

Perhaps a handful of businesses are just on the cusp of hiring a new employee. The subsidy, for them may be enough to force their hand. Since the bill offers an additional credit after 52 weeks of employment, there may be an extra incentive to keep the new employee on the payroll for at least 52 weeks if, without the credit, they would have been on the fence in regard to keeping the employee that long.

One can rest assured, however, that a struggling business, who is currently unable or unwilling to hire new employees has an actual financial reason to abstain from hiring. Common sense tells us that a business owner or decision maker will not hire an additional employee if having to pay an extra wages and taxes is not expected to return some sort of profit; immediately or somewhere down the road. Otherwise, the wage and tax paid is simply wasted money. A business without the means to hire a new employee typically does so because they cannot afford to pay 100% of the cost of that employee taking into account what that extra employee could return in profit.

The bottom line with this proposed legislation is that unless businesses can afford to hire a new employee at 93.8% of the typical cost, this provision will not create jobs.

That being said, this particular provision of the bill is likely to be embraced by both sides of the isle; Democrats for its promise to employ the unemployed, and Republicans for its promise to save businesses money. Whether or not it can be tweaked in a way to actually stimulate job growth is yet to be seen.