Congress is sitting on an easy solution to speed job growth without causing inflation

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June’s jobs report shows the economy is recovering, but the nation is still down 7.5 million jobs from over a year ago when the unemployment rate was less than 4%. Today, we are not near that number, and more than 42% of those unemployed have been that way for more than six months. A year ago, that number was 7.1%. Small- and- medium-sized employers are moving cautiously, unable to raise wages without higher consumer prices, which could trigger inflation as well as hurt their business. And the unemployed face higher costs, like childcare, if they ever even get a job offer.

Congress can help create jobs faster across all industries without fueling inflation in a way that is cost-effective and should be bipartisan: Simply suspend the federal employer payroll tax – currently at 7.5% – only for employers who increase their payrolls by hiring people who have been out of work for six months or more. 

Suspending the federal payroll tax for hiring the long-term unemployed would be a boon for reducing unemployment

This simple move, which was done before in 2010, would give employers a clear, certain, and targeted financial incentive to focus on hiring the long-term unemployed. According to the Congressional Budget Office (CBO), a payroll tax suspension targeted and tied to expanded payrolls is one of the most cost-effective ways to increase employment. Something similar — a payroll tax-credit for keeping current employees — was included in the most recent stimulus bill, but nothing was done for creating jobs or hiring the long-term unemployed.

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The payroll tax suspension would be for a limited time. Tying it to employers who hire the long-term unemployed helps by making it easier for these employers to grow by increasing their payrolls without increasing prices. It could even lower some prices because labor costs would be less. Or, employers could use their tax savings to raise wages as they get back in the hiring game with an extra 7.5% in their pocket. It’s not a guarantee that wages will rise, but it does make it more likely. With a minimum wage increase off the table for the time being, Congress needs more tools to address the employment situation.

Washington’s plate is full of “big and bold” initiatives that are important for the long term. Most rely on direct government spending and are potentially controversial. A targeted tax cut is a form of government spending but it can be accomplished faster and with less bureaucracy, leading to tangible results well before the midterm elections. 

We can be confident of getting results because the Obama-Biden administration and a bipartisan group of lawmakers did this before. In 2010, Congress passed the Hiring Incentives to Restore Employment (HIRE) Act which suspended most of the employer payroll tax for one year in the wake of the financial crisis. The bill got 70 Senate votes — 11 from Republicans. While negotiations continue on the Biden administration’s American Jobs Plan, Senators Chuck Schumer and Mitch McConnell and …read more

Source:: Businessinsider – Politics


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