Donnerstag, Februar 11, 2010

Well, Is This A Surprise?

First we had billions thrown at the banks and insurers to avoid a melt-down.

Then we had billions thrown at GM and Chrysler to save the unions (not the companies).

Now this.

The critics are right: no one is going to hire someone, put them on the permanent payroll, just to get a tax credit. If the economy was on a major upswing - which it most definitely is not - and jobs were lagging severely, it might work for those companies raking in profits left and right, perhaps, but only at the margin.

The bipartisan Senate plan would exempt businesses from paying a 6.2 percent Social Security tax on the wages of new employees, as long as the workers have been unemployed at least 60 days. The tax break would run through the end of the year.

A company could save a maximum of $6,621 if it hired an unemployed worker after the bill is enacted and paid that worker at least $106,800 — the maximum amount of wages subject to Social Security taxes — by the end of the year. The company could get an additional $1,000 on its 2011 tax return if it kept the new worker for at least a full year.

The nonpartisan Congressional Budget Office recently concluded that reducing Social Security taxes for companies that add workers would be among the most efficient ways for the government to create jobs. However, in showing how difficult it is to create jobs through tax policy, CBO estimates that such a tax break would generate only eight to 18 full-time jobs per $1 million in tax breaks.

Saving $6k when hiring someone for $106k? GMAFB.

That's not an incentive to hire anyone: if anything, it's a boost to profits. But never is this a real job-incentive program.

And why are the Republicans supporting this? Ahhh, there is a reason:

In addition to a tax break for hiring workers, the Senate package would extend unemployment payments for people without jobs for more than six months as well as subsidies to help the jobless continue paying premiums for health insurance they had been getting through their former employers.

It also would extend through 2010 about $33 billion in popular tax breaks that expired at the end of 2009, including an income tax deduction for sales and property taxes and a business tax credit for research and development.

Those tax cuts make Republicans willing participants in the bill, despite skepticism in both parties that it will produce an abundance of jobs.

So the program isn't so much about generating jobs as to extend unemployment, subsidize their health insurance and extend some tax breaks that the Democrats would normally love to kill.

This isn't a plan, this is desperation.

Hint to those in Washington: workers get hired for three reasons, and all three have to be there:

1) Demand is so strong that there aren't enough workers to go around;

2) Companies can expand their sales and profits by hiring new workers, despite the costs;

3) When the next downturn comes, companies can shed workers as demand and therefore sales decline.

If any one of these three conditions isn't met, then companies won't be hiring. Meet all three, and employment increases.

Oh, and to make things clear: this is an asymmetric equation. Downturns have different coefficients than upswings. As long as companies are driven by the profit motive, this will always be the case. Don't use the same coefficients for both, as the fit is poor in both cases. Estimating asymmetric equations is an exercise left to the reader.

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