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  • What the HIRE Act Giveth, the Rest of Obama Agenda Taketh Away

    Job seekers line up for jobs at Citi Field in Queens in New York

    The latest attempt by Congress to wrestle the high unemployment rate is the HIRE Act, which is little more than a tax holiday for companies who hire additional workers. Even if this Act works as intended and encourages businesses to hire more workers, which in and of itself is not a guarantee, then other measures undertaken by the Obama Administration have the opposite effect, by actually stifling hiring by business. Some of the measures that counteract intentions of the HIRE Act are the minimum wage increases of the last few years, uncertainty of pending legislation on healthcare and cap-and-trade, and the Davis-Bacon Act that requires government contractors to pay wages that are above the market rates.

    The idea behind the HIRE Act is that the payroll tax holiday would reduce the cost of labor for participating companies by temporarily suspending the employer’s share of the Social Security payroll tax, thus coercing companies to hire new workers. However, the impact of such a measure is unclear, since the tax holiday will only be temporary and will have little impact – a qualified employer who hires a worker earning $51,000 annually will receive a subsidy equaling roughly $264 per month. However, these subsidies amount to lost revenue in the Federal Social Security Trust Fund – an institution that even without this additional burden is running a significant deficit.

    The minimum wage increases in the last couple of years have contributed to a rise in the unemployment rate. The minimum wage was increased from $5.15 to $7.25 between 2007 and 2009. It is a fact that unemployment goes up as the minimum wage increases because businesses have to pay workers more to keep them employed, and inadvertently not all workers are kept after the minimum wage increases. Congress made their task of decreasing the unemployment rate that is currently hovering around 10 percent more difficult by their actions from several years back.

    Another reason why businesses are reluctant to hire more workers is because they feel a sense of uncertainty for what bills may be enacted by Congress. Critical bills such as healthcare reform and cap and trade legislation are currently being contemplated, which could significantly increase the price of labor for businesses. Until they are certain about whether or not they must pay for healthcare of ever worker on payroll, or whether the cost of energy could potentially rise due to cap-and-trade legislation, businesses are not going to be enticed by a temporary payroll tax hike to hire workers whose wages will need to paid indefinitely into the future.

    The Davis-Bacon Act is yet another measure currently on the books that hinders rather than encourages more hiring. Government construction spending has to cost more than the market rates, and to pay for this extra cost, the government takes money through taxes from elsewhere in the economy. But Congress cannot reduce unemployment through public works projects, because for every job that it creates in the public sector, at least one job is not being created in the private sector and in the best-case scenario the net job creation is zero, but 160,000 jobs are actually lost because of this legislation.

    Although the HIRE Act is intended to reduce unemployment, there are many other bills and laws currently on the books that directly counteract the goals of this bill. Congress should consider how to assuage negative effects of these other laws before looking for new ways to decrease unemployment. The fact that Congress is looking at ways to decrease the unemployment rate is a good sign, but attempts by Congress to decrease the unemployment rate will never succeed if other laws are passed that actually lead to higher rates of unemployment.

    Posted in Economics [slideshow_deploy]

    3 Responses to What the HIRE Act Giveth, the Rest of Obama Agenda Taketh Away

    1. Jon Smith says:

      $264 incentive? This is ridiculous! Is this the result of one year long efforts of all this army people? Why do we pay them their salaries?

      In reality there is plenty of jobs out there. But American people are too spoiled. They want six-digit salaries right out of school. If nobody offers them that salary, they prefer welfare. That is the problem. If those who don’t want to work couldn’t survive without work, if our government didn’t provide them that opportunity, we wouldn’t hear about unemployment problem.

    2. Andy, Washington DC says:

      At least something is better than nothing. As discussed, http://www.savingtoinvest.com/2010/03/payroll-tax… , Thus, businesses that move quickly to hire today will get a bigger tax credit than businesses that wait until later this yea

    3. Rev. Christopher Coa says:

      While the HIRE Act will make it possible for us (a Faith-based non-profit operating transitional housing; drug rehab; and employment programs at seven facilities in three Southern states) to save $155k on approximately 2.5 million in new hire payroll this year, we are busily calculating what the new health care legislation will mean. We employ over 1600 people ($3.2 million in employer fines?) per year through our community-based back-to-work programs that focus on homeless or formerly incarcerated individuals who also have issues with addiction. These people remain on our back-to work program payroll until such time that the for-profit corporations that use our services (at a fee which generates the operating margin to pay for our programs) hire them upon graduation from our program. Our model will no longer be viable when the law requires us to provide health insurance for these workers (they are now supplied with care through health departments and non-profit community clinics). In other words, the law meant to help will not just render them unemployed but potentially homeless once again as we are forced to close facilities and curtail services that are not sustainable with the additional financial burden health care premiums or fines impose. Ultimately, this will also lead to relapse and reincarceration for many as they return to their former means (crime) of funding their addictions. Any armchair economist can tell you that this will ultimately cost the taxpayer even more as this population returns to the care of local, state, and federal prisons. For years we've labored to empower people to be self-sufficient; now they will likely return to the entitlement mentality that we have worked so hard to overcome. I am feverishly working to define a legal and ethical model that will allow us to sustain our programs, but between health care reform and the vast body of federal employment law it would appear that I have been handed a regulatory Gordian knot–and I do not possess Alexander's sword! Our upkeep truly will be our downfall.

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