In the face of growing resistance to his agenda, President Barack Obama is turning to an issue that enjoys wide support throughout the country: job creation.
In the State of the Union address, he proposed a social security tax waiver for businesses that hire new employees this year that is being worked into the Democrat “job bill,” according to The New York Times. The problem, however, is that this fix does nothing to address the underlying uncertainty that makes businesses hesitant to add to their staffs.
Businesses do not like to make decisions without information, and this has made unemployment during the recession especially high. When Obama entered office during the recession pledging to put mandates on health insurance and change corporate and capital gains taxes, the future became very murky for many companies. Predicting future costs of labor and after-tax returns was difficult, and many companies delayed projects until more information became available.
I’m not going to claim credits can’t motivate businesses to hire. Some decisions are sure to come down within the $3,400 saved on a $60,000 worker, but only if numbers are available to analyze. And since the credit is only slated to work this year, a mistake about the timing of economic recovery and higher sales could lead to a lay off and severance packages, likely much higher than the $3,400.
Imagine a student considering attending ASU. We are always told that college graduates make much more than only high school graduates, but suppose the difference in starting salaries drops suddenly. There is widespread suspicion that it will pick back up, but no one knows exactly when.
Now imagine ASU begins talk of implementing new fees, which may or may not come into effect when the student is enrolled. What will the student do? All he knows is that going to school will put him in debt right now. After that, it is very hard to tell.
That is the situation of businesses in the economy today. Like students considering college, a lower cost will change the right decision for some firms from “don’t hire” to “hire.” The problem is that it is almost impossible for the business to know until after the situation has passed.
We can certainly admire the zeal with which Obama and Congress are going after perceived problems, but their current strategy is just to find symptoms and throw money at them. Given time and predictability, the market will find an efficient system on its own and should be allowed to do so.
Talking about this tax credit, the president said that “government can create the conditions necessary for businesses to expand and hire,” and he is right. But the best way is to give the country a period of stability and a flat tax cut using this money. Businesses don’t need to be forced into hiring; slow down in 2010, let them catch their breath and the jobs will come.
Contact Ben at bjmorin@asu.edu
