So it seems my last post (timely as it was), which mused about the proposed HIRING Act of 2010 was trumped by an announcement that President Obama had decided to jump on the bandwagon with his own proposal.  In his proposal, The Small Business Jobs and Wages Tax Cut, outlined on Jan 29, 2010 is intented to kickstart new hiring by small businesses.  Under Obama's plan, small businesses would receive a $5,000 tax credit for every new employer hired in 2010.  This would be capped at $500,000 per business and $250,000 for start-ups.  The credit would take the form of reimbursement for the increase in Social Security Taxes paid on real increases in their payrolls, creating what was referred to by the White House as a "de facto payroll tax holiday".  Like the HIRING proposal I mentioned in my last post, this credit would be claimed on a quarterly basis but unlike the other proposal, explicitly states the method of renumeration.

President Obama claims that this proposal will be worked into the various other proposals that have already advancwed in Congress, such as the HIRING Act of 2010 and the Jobs for Main Street Bill of 2010 (which was approved by the House on December 16 and would be paid from TARP funds as part of the Emergency Economic Stabilization Act of 2008.  The Small Business Jobs and Wages Tax Cut carries the blessing of Morgan Stanley, the Economic Policy Institute, the Small Business Majority, and a number of leading economists.

What do these mean for us?  First, the President's proposal is specific in that the credit is for "Net Jobs Created".  In other words, if you lay off 10 people and hire 5 in 2010, you are not eligible for the credit.  Your business would be eligible for credit an increase in "Net Gross Pay" as well, providing the proper incentive for you to do so by eliminating the proposed increase in your employer share (6.2% of the Employee's Gross Wages up to $106,800) of the Social Security Taxes.  This proposal seems sound in the sense that the employer cost to bring on a new employee is lowered significantly and if you assume that the employee is hired with the intention of either delivering new revenue, or new growth to the business, then that means that the cost of doing so hs just come down signifcantly for  2010.  As well, if your company has increased revenues in 2009-2010 and you now require new employees to fulfill the obligations created to your clients by that growth, then your cost of labor has decreased significantly, at least for 2010.

But is it sustainable?  What happens if I as a business owner get used to the lower cost of labor, and as a result, must meet the reality of "newly" realized employer taxes in 2011?  Not if we are betting the jobs growth will create economic growth and the resulting increase in employment opportunties.  But if that economic growth does not happen, won't we be back in the mode of trimming headcount again?  Which leads me to my second concern about this plan:  while the cost to employ is decreased in 2010, the risk of hiring does not in the sense that employers still must bear the pain of supporting their State's unemployment burden, which can increase for a business if the new hire "doesn't work out".  In other words, most State Unemployment Agencies are under pressure to grant benefits to the unemployed even if the reason for unemployment was justified.  This means that the burden again, goes to the employer who is funding the unemployment benefit. 

So could this plan be the beginning of the end for the employer Social Security Tax, and potentially a reprieve in unemployment benefits...?  Don't count on it.  And as I have said before, there is still healthcare to deal with.  But all, in all, the idea (and the fact that we are talking about it), is a good start.