Categories:
Labor Market
Macroeconomics
Senators Charles E. Schumer and Orrin G. Hatch write,
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.
Just over a year ago, Bryan Caplan proposed a smart stimulus that involved cutting payroll taxes.
READER COMMENTS
Nick
Jan 26 2010 at 9:44am
How much will a temporary change really affect anything? What stops someone from firing two part timers and hiring one FT and keeping the difference in payroll tax in their own pocket?
Joshua
Jan 26 2010 at 10:00am
A long long time ago… I can still remember how that Fair Tax used to make me smile.
Justin Dailey
Jan 26 2010 at 11:50am
Why sixty days? That seems like an incentive not to hire someone who has just been laid off. I wouldn’t want to be laid off tomorrow and be hearing that if I wait until late March the company I am interviewing with can save several thousand dollars in 2010 – or that they filled the job with someone who was laid off in November, and not to bother calling in March.
Also, doesn’t this reward regular turnover, and in particular businesses with high turnover?
Maybe the incentive should be structured as 6.2% of incremental payroll. So if your monthly payroll was $1,000,000 in January and $1,100,000 in February, you receive $6,200 for February.
I also agree with Nick that the temporary nature of the program could be problematic. The labor market is different from product markets, but recall what happened to home sales after the homebuyer tax credit (briefly) disappeared and car sales in the wake of cash for clunkers…
If the economy requires recalculation, and we want to use fiscal policy to ‘fix’ the economy, might we instead increase unemployment compensation for the long-term unemployed who agree to go back to school? If it’s just a case of labor costs being too high, then I’d be more inclined to support Scott Sumner in his quest of jawboning the Fed into targeting NGDP futures and closing the gap between current NGDP and the historical trend in NGDP.
Ed Hanson
Jan 26 2010 at 12:22pm
As Justin Dailey so well presented, the problem with such programs are the details. Even to the point of how is a 60 day unemployed person defined? Someone on unemployment insurance roles, an independent contractor whose business dried up, but being ineligible for unemployment compensation? Or a new 16 year old who never had a job? Or the housewife who wishes to return to employment after raising her children?
To extend the argument, much of the benefit of a program will accrue to the bureaucrat whose job is to protect us all from corruption. Simply put, such stop gap measures serve mostly to hide the real problem, federal revenues have reached a point in size that private initiative is greatly inhibited from action of solving individual problems.
floccina
Jan 26 2010 at 4:13pm
This would be a great time to eliminate the SS and medicare taxes. Then later we can raise the eligibility ages and standardize the SS checks to a fixed amount, no longer giving more to those who paid in more, making it more like retirement insurance than a retirement plan.
Michael Metcalf Bishop
Jan 26 2010 at 6:15pm
Accuse me of being biased if you want, but I agree with my father and other economists who think we need to go bigger.
http://www.ilr.cornell.edu/cahrs/hrSpectrum/HR-Policy-Bishop-Job-Creation-Tax-Credit.html
Bob Etheridge’s bill is closest.
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