Schumer, Hatch offer payroll tax break for new hires
By Ben Pershing
Sens. Chuck Schumer (D-N.Y.) and Orrin Hatch (R-Utah) released a plan Wednesday to give tax breaks to companies that add new workers, a proposal that is likely to become a key component of the jobs bill Senate Democratic leaders are hoping to unveil this week.
President Obama has called for employers to receive a $5,000 tax credit for each new employee they hire, while other lawmakers have floated different proposals for a job tax credit. The Schumer-Hatch plan, which would allow companies to avoid paying Social Security taxes for the duration of 2010 on each unemployed worker they hire, appears to have the most momentum in the Senate.
"Our payroll tax cut is a simple, cost-effective and bipartisan solution. It will help put more Americans to work right away," Schumer said in a press release. Hatch added: "While Senator Schumer and I disagree on most issues, we've been able to come together on an affordable, effective and targeted proposal to get the American people back to work."
Democratic leaders emphasize that they haven't yet settled on an exact combination of items that will go in the Senate's jobs package, but Senate Majority Leader Harry Reid (D-Nev.) suggested Wednesday that he was taking a close look at the Schumer-Hatch bill. Democratic aides said the measure was a likely candidate for inclusion.
A summary of the plan, provided by the two senators' offices, follows:
"HIRE NOW TAX CUT ACT OF 2010"
February 3, 2010
BASIC CONCEPT: Starting immediately after enactment, any business that hires a worker that had been without full-time work for at least 60 days prior to employment can avoid paying the employer's share of Social Security taxes on that worker for the duration of 2010. The more a business pays a worker (up to the maximum Social Security wage of $106,800), and the longer a business has a worker on its payroll, the greater the tax benefit - so there is an incentive to hire people sooner, and pay them more.
Unlike various tax credit proposals, the benefits under the "Hire Now Tax Cut" go immediately into a business' bottom line - no waiting until 2011 to receive a tax credit. And since the benefit starts immediately after enactment and does not have an arbitrary cap, it will facilitate utilization because some of the past issues with payroll software are avoided.
For any qualifying worker hired under this incentive that the employer keeps on payroll for a continuous 52 weeks, that employer is eligible for an additional $1,000 tax credit after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80 percent of the pay in the first 26-week period.
Workers hired after the date of introduction (February 2) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of enactment receive the exemption from payroll taxes.
EXAMPLES OF TAX SAVINGS:
Ø Hire a $50,000 worker on March 1, save $2,583.
Ø Hire a $90,000 worker on April 1, save $4,185.
Ø Hire a $60,000 worker on May 1, save $2,480.
The tax benefit applies only to private-sector employment, including nonprofit organizations - public sector jobs are not eligible for either benefit.
Employees who are immediate family members of the employer do not qualify.
There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
For workers that would otherwise be eligible for the Work Opportunity Tax Credit, the employer must select one benefit or the other for 2010 - no double-dipping.
A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
For the retention bonus to be paid, the worker's wages during the second 26-week period must be at least 80 percent of the wages during the first 26-week period.
Lost Social Security Trust Fund revenues will be supplemented by the General Fund.
· Simple. The Schumer-Hatch idea is easy to explain and administer: "No employer payroll taxes on unemployed workers hired in 2010." Since the proposal is for a complete elimination of the 6.2 percent payroll tax for eligible workers, rather than a fixed or capped dollar amount, employers will know to simply zero out the tax for eligible workers.
· Focused. Given our budgetary constraints and the nagging problem of long-term unemployment, any employment incentive should be focused on the hiring of workers who are currently unemployed. Only by focusing on the unemployed can we get people off the unemployment rolls at an affordable cost to taxpayers. Plus, unlike some versions of a payroll tax holiday, this proposal is not biased towards either low-wage or high-wage workers. Under the Schumer-Hatch plan, a business saves 6.2 percent on both a $40,000 worker and a $90,000 worker.
· Front-Loaded. The proposal provides an incentive for businesses to hire workers earlier in the year, because the tax benefit will be greater. A $60,000 worker hired on March 1 will save a business about $3,100 in taxes, while that same hire delayed until May 1 will save about $2,500.
· Immediate. In the current environment, no business should have to wait until 2011 to receive tax relief for hiring. Our proposal puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
· Affordable. Because this provision is targeted towards hiring the unemployed, as opposed to providing a tax benefit for any increase in payroll, its cost should be more affordable at a time of record budget deficits.
February 3, 2010; 2:38 PM ET
Categories: Capitol Briefing
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