September 9, 2011

Last night, President Barack Obama presented his long anticipated plan for creating jobs: the American Jobs Act. The plan calls for a combination of tax incentives and spending that are intended to motivate companies to hire people and raise salaries while also providing economic support to unemployed people. The price tag: nearly $450 billion.

Small businesses are a central theme of this proposal. Let’s take a closer look at what this could mean for your business.

What the job market looks like now

The job market is in terrible shape. The unemployment rate, currently at 9.1 percent, has hovered around 9 percent for well over two years. That’s nearly twice the rate that is considered healthy for our economy. Over 14 million people are now unemployed, actively looking for work and unable to find it. Over 6 million people have been without a job for at least six months. In addition to the unemployed, 8.8 million people have been forced to take part-time work because full-time work isn’t available. Another 2.6 million people want to work but are so discouraged by their prospects that they haven’t actively looked for work in a year. If we add together the people that are unemployed, underemployed and discouraged, it represents nearly one-fifth of our labor force. Yes, it’s a terrible job market.

What the President is proposing

The President’s proposal essentially calls for the following:

• 50 percent reduction in payroll taxes for the first $5 million in wages paid by small businesses.

• Temporary elimination of employer payroll taxes for small businesses on new workers hired or on raises given to existing workers.

• Extension of the 100 percent expensing of investment for company purchases of equipment.

• Tax credits ranging from $4,000 to $9,600 for businesses that hire unemployed persons.

• Investment in infrastructure projects.

• Relaxing and expanding regulations that allow unemployed persons to collect unemployment while trying to start their own business.

These broad proposals must be translated into legislative language. Anything could change during that process.

The jobs plan is by no means a done deal

The President’s speech was simply an outline for a proposal. Despite the President communicating a sense of urgency, this is only the first step in a long, complicated and political process. Draft legislation must be prepared. These drafts must go through the standard processes in both chambers of Congress. Both chambers must then vote on their respective drafts of the legislation and pass them. Then these two drafts must be reconciled and a final vote taken before the President can sign it into law. All of this will require bipartisan support at a time when political polarization and mistrust is at a peak.

So will it work?

Assuming that the plan is implemented as the President proposes—something that is unlikely—it’s doubtful that the jobs impact will be meaningful. A reduction in payroll taxes does not provide sufficient inducement for a company to hire someone that they weren’t planning to hire anyway. If a company already planned to hire someone, then they might accelerate the hiring date because of this incentive. But it’s hard to imagine that a company will add a $50,000 a year position in order to save $3,500 in payroll taxes and receive a $4,000 tax credit.

Job creation is stimulated by increased demand. Companies hire more people when they know with great certainty that demand for their product or service is going up. While a tax reduction linked to hiring is always welcome (like any tax cut), this doesn’t do much to stimulate demand or increase the clarity with which business owners can predict overall economic conditions in the short term. As long as our economy is characterized by lackluster demand and uncertainty about the future, hiring will not increase significantly. We still have a lot of work to do before things get better.

Did you hear the President’s speech? What did you think? Will you change your mind about hiring new employees if the plan is becomes law?

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Join the conversation ( 9 )

• Robert Fott 8 months ago

  

  1. Get rid of the idea of the "Health Care" Plan. 2. Find President Reagan's Grace Commission report and implement it - immediately. 3. And, an abhorent thought, take a 10% wage reduction for every Federal, State and City worker making more that $100,000 per year. 4. Reduce CEO's excessive wages, bonuses and stock options. Why, other than ego and personal self esteem, does a person need an income of $10,000,000 or more?Robert Fott, CPA

  • LAURA CANALES 7 months ago

    

    Mr. Fott, Your points are important for saving some money--however, how would any of these help create jobs in this country?

• Jim Kallas 8 months ago

  

  We need to bring back "Made in USA". Bring back manufacturing jobs, tech support jobs, incentives to film movie and TV shows in California, restrict imports or put a tariff on imports like President Reagan did to Japanese and European motorcycles back in the 80's when Harley-Davidson asked for help from the government. Get rid of unions and close tax loopholes for the very wealthy individuals and businesses. Legalize and regulate gambling, marijuana, and prostitution to generate more income and reduce crime. Raise taxes on cigarettes, booze, botox, and plastic surgery to pay for Healthcare. Tax breaks for businesses under $500K. Tax breaks for businesses that hire American workers and keep manufacturing and tech support jobs in USA.

  • LAURA CANALES 7 months ago

    

    Good suggestions here. Mr Kallas has some ideas on how to create jobs right here.

• ANDREW HRYCKO 8 months ago

  

  Tax incentives will not induce hiring. Uncertainty regarding the cost of the new health care is the largest factor holding back the economy. The country thinks this bill was forced upon us, we don't know enough about it and our government can not afford it. We need to cut the size of government and strengthen our national defense. Let business create the jobs and the wealth and keep the government to a minimum.

• James Henry Jr 8 months ago

  

  Same old , tired, BS. Porkulus #3

  • Denise Jensen 8 months ago

    

    Got a better plan? Submit it.

    • Linda Hillenbrand 8 months ago

      

      Give confidence to small business (which employs 50% of our workforce) to be willing to hire. Just cutting payroll tax is not going to do it!!

    • Moe Figueredo 8 months ago

      

      Actually, increasing employment is as simple as increasing defense budgets. We used it to get us out of the grest depression and again after the fiasco that was our economy during the late 1970's. Reducing defense budgets without a commencerate increase in available funds in private industry will only crush this economy further. It's a tired old saw to reduce defense defense budgets as a societal goal, but when you throw hundreds of thousands of high paying wage earners out on the street, yet provide no alternative the economy will decline. If you want to reduce defense then you'd better cut taxes like crazy, so that those tens of thousands employers who count on defense dollars as a revenue source feel confident that they will have a replacement revenue stream, or they will retrench by laying off more workers until they feel safe. It's all about employer confidence.