These incentives would cut the first year cost of the $25,000 salary to as much as $15,400 (for a disabled vet). Over the next five years, however, that same employee would cost the employer (even if not a single raise were given) a total of $125,000 in salary, $14,500 in payroll taxes, and more if other benefits were provided. So, an employer would have to think carefully about his long-term costs.
Another concern about job tax incentives, Logan notes, is that a business could “game” the program. Although the AJA says employers can get a credit for hiring a qualified worker, it doesn’t say the newly hired can’t be laid off. So, an unethical employer could hire another to do the same job and get another multi-thousand dollar subsidy—a loss to the Treasury and no net reduction in unemployment.
In Los Angeles Sept. 26, Obama told fundraisers his administration knew “it was going to take years” to rebuild from what he suggested (passing the buck) was the “old worn-out ideas that were tried in the last decade.”
The American Jobs Act would cut the payroll tax rate in half for 2012, supposedly to put a little more money in people’s pockets.
This is based on the faulty assumption that the money immediately will be spent. Empirical research, however, shows that is not the case.
According to Logan, research in 2001 and 2006 showed when households got direct payments, they were, contrary to expectations, “very ineffective at increasing demand.” Only 25 percent of the recipients spent the money or said they intended to do so. The rest decided to save the money or pay off debt.
The AJA would extend the temporary measure, made in 2010, to allow firms to expense a major purchase rather than amortize it over a period of years. Economists favor full expensing because depreciation rules are often arbitrary. But full expensing loses its effectiveness if temporary. Temporary expensing does “little to increase employment or output,” Logan says. “If replicated, this would result in lowering unemployment” by as little as 0.7 percent.
“While it is likely that the tax incentive portion of Pres. Obama’s plan would deliver few jobs and little economic growth, the permanent tax increases that ‘pay for’ the tax cuts can do permanent harm to the economy.” The tax increases total about $460 billion over 10 years.
“By and large, these measures are not motivated by sound tax policy, but rather as a means of punishing politically unpopular groups” like “‘the rich,’ hedge fund managers, and oil companies.”
Whatever “meager benefits come from these temporary provisions will be swamped by the long-term impact of the permanent tax increases that are nearly twice the size of the tax cuts,” Logan concludes.
Actually, in line with a Sept. 19 speech, the Obama plan totals $1.2 trillion in new revenues, most of which comes from the vow to raise taxes back to the Clinton era rates on top brackets before the Bush tax cuts. Tax hikes would also include Warren Buffett’s proposal to up the tax on all millionaires.
Clearly, the Obama 2012 campaign is rushing ahead willy-nilly, not with cutting unemployment as its goal, but with class warfare as the central theme.
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