Saturday, September 4, 2010

Why A Payroll Tax Holiday Won't Work

Much is being made of the president's proposal to pass a payroll tax holiday to spur hiring, and I will say that it's not a bad political move. After all, it won't cost much and the Democrats are praying that Republicans will fight it so they can paint them as opposed to tax cuts.

But all tax cuts are not created equal. The GOP probably should oppose it -- or at least condition their support on also extending all the Bush income tax cuts.

You see, businesses do not make long-term expansion plans based on temporary circumstances and the payroll tax cut will certainly be temporary. It might well result in the hiring of a few people, but -- like Cash-for-Clunkers and the house tax credit -- most of them would have been brought on anyway and any additional hires will probably just be pulled forward from future hiring (resulting in an "unexpected" drop later on).

Mr. Obama forgets (actually he probably never knew) that businesses don't exist to create jobs. Jobs are a cost even with a 6.2% tax break. What they need are incentives to grow and to produce more; and only tax cuts on profits and capital will accomplish that. The president doesn't care for those words "profits" and "capital".

But this is all theory, of course. The real-world reason why it probably won't work is that WE'VE ALREADY HAD A PAYROLL TAX HOLIDAY IN EFFECT ALL YEAR!!!

In March, the President signed into law the “Hiring Incentives to Restore Employment Act of 2010” (the 2010 HIRE Act), the centerpiece of which is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. Here’s an overview of these new hiring incentives and some new details that carry important guidance on these new payroll tax breaks.

To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Yes, you probably didn't know about it because no one talks about it because no one's hiring. This idea does follow the Left's modus operandi, though. If a big government program doesn't work, just do it again -- bigger.

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