Schumer and Hatch Almost Discover Incentives

Senators Charles Schumer and Orrin Hatch have a plan to help employment. As expected, the usual caveat about bi-partisan action applies.

Here’s the idea: Starting immediately after enactment, any private-sector employer that hires a worker who had been unemployed for at least 60 days will not have to pay its 6.2 percent Social Security payroll tax on that employee for the duration of 2010. The Social Security trust fund will then be made whole with spending cuts elsewhere in the budget between now and 2015. That’s it. Simple to understand, and easy to explain.

I’m going to leave the issue of economics, of whether or not this could work, to those more qualified to answer. For me, the issue is incentives. They’re trying to create an incentive for employers to expand employment. It’s fine if you like that sort of meddling, but I don’t. I’d rather they get the government out of the way than try to find the ‘correct’ plan to lead. They’ve already stated in the article that the Congress of the 1970s created ineffective, burdensome incentives. Our default assumption should be that today’s Congress will do the same whenever it tries.

To this plan, though, what about the worker who hasn’t been unemployed at least 60 days? Why is it fair to disadvantage her, however marginally? What’s magical about day 60 that isn’t burdensome about day 59? Day 58? I can think of many complicated individual circumstances – some ridiculous, some not – complicated by this arbitrary incentive.


In addition, because the benefit starts on the date of hiring and does not have an arbitrary cap, more businesses will want to use it. And since it is an elimination of the employer’s share of the Social Security tax for these workers — rather than a fixed or capped dollar amount — the complexities of making the incentive work with a firm’s payroll software are greatly reduced because employers will know simply to zero out the tax for these workers.

I work with financial software systems. Contrary to what the good senators believe, software design often excludes “simply zero out the tax” for individual workers. Incorporating such changes is often supported in a company’s license with the software provider, but those changes must be implemented in some capacity. That takes time. Maybe it is “simply zero out the tax,” but it’s more likely to require a new field to turn this feature on and off. That requires testing to verify that it doesn’t create other problems. These changes may require new code to apply the proposed 60 day minimum requirement for unemployment history. There may also be new levels of approval, since you wouldn’t want everyone to have the authority to “simply zero out the tax.” All of this must be maintained.

In the current environment, no business wants to wait until 2011 to receive a tax credit for someone it hires today. Another obvious benefit of this proposal to forgive payroll taxes is that it keeps money in a business’s pockets, since the tax is simply not collected in the first place.

If these software changes can’t be implemented immediately, the tax will be collected in the first place, creating further paperwork to receive a refund.

There are some additional rules that would have to be put in place. For example, eligible workers would have to be hired for a minimum of 30 hours per week, and workers who are family members of the employer would not be eligible. The payroll tax reduction would be for private-sector jobs only; new jobs that are created by tax dollars in the first place would not be eligible. And any employer with a lower total payroll in 2010 than it had in 2009 would have to forfeit the benefit — businesses shouldn’t be allowed to shed jobs and still receive a tax benefit.

Isn’t this plan supposed to be simple?

Like all politics, this is about appearances hiding the desire for control. There’s no concern for productivity. Much can happen in the next eleven months that could cause a company to shed jobs, despite a good faith effort to expand. But it shouldn’t be allowed, because we need full employment, not full productivity. To a politician, digging unneeded holes is no less valuable than any other job. This is no more true than when the politician can claim credit for creating the hole-digging job.