Stimulus is Easy

From Zanecorpwiki

Everyone knows the problem with the recovery is jobs and the answer is to get the private sector hiring. Depending on your political leanings, you'll have a different narrative as to why the private isn't hiring, but none of that matters because to get the private sector is easy.

Give a $10,000 tax credit and waive SS/Medicare employer contributions (the 7.5%) when:

• an employer hires a new employee who:
  • was not laid off or fired after the announcement of the bill
  • has filed for and received unemployment within the past 18 months and is currently unemployed
  • does not have to be receiving unemployment currently (this allows temp workers and those that have run out of benefits to qualify)
• the new hire must be employed continuously at full time and receiving health insurance for 12 months
• small business of less than 4 employees need not provide health insurance to qualify, but must pay a stipend of at least $50/month/employee to offset the costs of private insurance
• each business may hire up to five employees under this program and the total work force of fully employed workers for the entire 12 month period for each worker claimed under this program must be net positive for each claim (in other words, they can't fire an existing worker and hire a new worker to get the credit)

After these conditions are met, the credit can be claimed either in the year in which the 12 month condition is met or the previous year in which the hire was made. To receive credit for the employer SS/Medicare contribution, the business will have to refile for the previous year or can take a credit for taxes paid against the current year.

• There are about 10 million unemployed Americans.
• My guess is that you wouldn't have enough unemployed people to meet the demand for something like this.
• The cost would be roughly 10 mil * $10,000 + 7.5% * average wage; assume a $50K average wage (which I suspect is a little high), and the rough cost would at most be $137.5 billion in lots tax revenue.
• That's about 18% of what the stimulus bill cost.

Criticism and Answers

What's wrong with this plan? Well, it doesn't address and may harm the underemployed who don't qualify. But, compared with the stimulus, there's lots of money left over to try and do something for them as well. Perhaps a smaller program that rewards employers for switching employees from part time and contract work to full time employment.

You could also say, "Well, hindsight is 50/50." I would challenge this on two points. First, many economist, and the CBO itself, didn't think the stimulus would help that much. Many of the incentives clearly just shifted demand, but didn't increase it. Nothing significant was done to actually incentivize hiring which we always knew would be slow and the real problem. Second, you don't need to know the stimulus as done would fail to be pretty sure something like this would do better.

On a related note, the cost is clearly less anyway so this plan would have been better to try.

Might the companies fire all the new employees after the clock runs out? Yes, this is a risk. The bet is that by getting everyone working, the "real" economy picks up and there's no need to fire them. The businesses keep the new employees because they've got 12 months of investment in them and they need the workers. I'm sure some portion, and probably significant, will be fired after the clock runs out or even before. The harsh truth is some of the people currently unemployed won't be good workers. Even under the program, the new worker has a cost to the company, so if they turn out to be bad at the job, or the company jumped the gun and hired the wrong person, they will be fired again quickly because it won't make sense to carry the employee just to get the tax credit.

However, those fired early on in the cycle can still be picked up by other companies. The net effect would, I believe, be to return us to full employment within a quarter.

Another hedge: if the economy doesn't pick up and many of the employees are let go before the employer qualifies for the credit, then the taxpayer doesn't have to pay. If the program fails utterly, it costs nothing. Compare *that* to the stimulus.