The Homa Files

Obama’s jobs plan has a smorgasbord of hiring incentives … all of which are 1-time credits (e.g. for hiring veterans) or 1-year tax incentives (e.g. eliminating half of employers’ FICA match).

Corp execs’ statements that they don’t hire based on 1-year incentives keep falling on deaf ears, and the Administration keeps serving them up.

Let’s look at a specific and do some simple arithmetic.

According to the Administration’s fact sheet on the Jobs Bill, the lead provision of the bill (about 15% of the $450 billion cost) is a payroll tax cut for businesses.

The President’s plan will extend the payroll tax cut to firms by cutting in half their payroll tax on the first $5 million in payroll. Next year, instead of paying 6.2 percent on their payroll expenses, firms would pay only 3.1 percent.

For example, a firm with 50 workers earning an average of $50,000 a year – for a total payroll of $2.5 million – would receive a payroll tax cut of 3.1% of its total payroll, or about $80,000 – $1,500 per average employee.

By intent, the cut doesn’t do much for big businesses. The maximum benefit that could go to a big company is only  $155,000 ($5 million times 3.1%).  That’s rounding rounding error – equivalent to maybe 2 “free” hires for 1 year.

Hardly a game changer.

So let’s look at a small business.

At the margin, continuing the fact sheet’s example, a new average employee’s base salary cost is $50,000. Fringes (e.g. health insurance) add on another $10,000.  Payroll taxes (pre-credits) adds on another $3,000 … bringing the total to $63,000.

But, companies don’t hire people for 1-year.  Once they’re added to the payroll, they stay there for awhile.

How long?

Well, the BLS says that the median tenure of employees is about 4.5 years … with almost 1/3 employees having been on payrolls for more than 10 years.

Let’s take the low number, 4.5 years.

When a company hires an employee, it is implicitly making a commitment of at least $285,000 ($63,000 times 4.5 years).

The Obama plan  offsets the cost with $1,500 …  a whopping 1/2 of 1%.

Does anybody really believe that will stimulate companies to hire in uncertain times?

I’m betting the under on this one.

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Tags: hiring, Jobs Bill, labor, Obama, unemployment

This entry was posted on November 21, 2011 at 9:25 am and is filed under Employment - Jobs, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.