President Barack Obama’s Jobs Act includes $447 billion in proposals. The piece of the American Jobs Bill that caught our attention: Payroll tax cuts. There has been a lot of controversy around the theory of “trickle down economics,” where tax cuts to businesses and the wealthy ultimately ripple through the rest of the economy. Without addressing the underlying pros and cons of this theory, it appears a proposed payroll tax break that is part of a larger Obama administration tax proposal may well trickle down to MSPs, and potentially boost small business hiring. As reported by University of Chicago economics professor Casey Mulligan in a recent New York Times editorial, a cut in payroll taxes could seriously stimulate hiring.
Mulligan claims a payroll tax cut of 3.1 percentage points, as is being promoted by Obama, could create as many as 3 million new jobs in the US. The proposal also cuts payroll taxes on new spending by 6.2 percentage points, which in theory would make new hires in 2012 even less expensive, although Mulligan argues it also makes payroll reductions in 2011 less expensive. Nevertheless, this esteemed economics professor at an Ivy-grade college thinks the payroll tax cut has serious potential to add a lot of jobs.
Why does this matter to MSPs, beyond a possible general improvement of the economy? Because historically, SMBs create most jobs and employ most people in the US. If a wave of new jobs in the next couple of years stays true to form, most of the jobs created will be with SMBs.
Expanded workforces require investments in expanded systems to handle things like HR, training and payroll, as well as possible investments in other corporate systems to handle an increased influx of data.
Also, new employees may work remotely part or all of the time (half of SMB employees work remotely, according to Fonality). And guess what? Most SMBs are struggling to effectively manage the systems they have in place now, never mind upgraded or expanded systems new hires might require. Furthermore, some of the general cost savings produced by the proposed tax cut may go toward IT upgrades, which will most likely require MSP assistance.
As the old Tom Petty song tells us, “the waiting is the hardest part.” Washington does not move quickly, especially in divided times and as a presidential election approaches, and it is unlikely a tax package proposed by Obama could pass through both houses of Congress without some alterations by Republicans. But considering the general antipathy toward taxes held by so many voters and politicians these days, it seems likely there will be some sort of payroll tax reduction before the November 2012 elections. If MSPs can manage the wait, opportunity will likely reveal itself.
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Tags: American Jobs Act | American Jobs Bill | Barack Obama | President Obama | Small Business Hiring | Small Business Tax Incentives | SMB Hiring | tax cuts
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So it’s simple math — if the fully burdened cost of a person is higher with the taxes, I can higher less. If the cuts were significant enough, YES, I’d hire another person. I set my budget based on projections, and the cost is fully burdened. if I can hire an additional person with that money , I will.
Dave,
Question: What is my favorite thing about entrepreneurs like you?
Answer: You create jobs. I think that is the most amazing talent.
I don’t know if the folks in DC can do anything “more” to help entrepreneurs and small businesses. In fact, I wish they’d do less. America remains an incredible country for entrepreneurs and innovators. But all the bureaucracy makes it pretty difficult for entrepreneurs to create those jobs…
-jp
I wouldn’t start interviewing just yet. The tax credit for SMB would be a smart move, but I am concerned about our government’s ability to pass anything meaningful at this point. Furthermore, if by some miracle the Job Bill gets through, aren’t you concerned about government’s execution? Don’t get me wrong, I am still very optimistic that Washington has hit rock bottom and things will be improving from this point on, but I wouldn’t start hiring just yet. The concern is that the SMB sector may lose even more jobs, if the hiring decisions are not timed properly.
Another though. I don’t think America is ever getting the manufacturing jobs back. That boat has sailed, we have gotten too expensive and to inefficient. However, we still have a great chance to lead in the high tech (cloud computing specifically), pharmaceutical, oil, and financial industries. Since oil, finance, and drugs have gotten plenty of attention from the government in the recent years, I would like to see the most benefits directed at our sector (I mean high-tech startups and progressive MSPs willing to invest in the new technology thus moving it forward.) Call me selfish, but I think we will get the most jobs for the taxpayer’s buck this way.
Jacob,
I for one, am not waiting for, nor am I at all optimistic that the folks in DC will help spark the economy any time soon. The politics between to 2 (3?) parties are just too strong. And in extending your words, I believe “many boats have sailed”. We in the cloud world, very arguably, couldn’t be in a better position vs. many, many other places to be. But, it’s up to us as individuals/small businesses/micro businesses to “make it happen”. “True” entreprenuers will shine. My 2 cents worth……..
best,
Todd
Unfortunately for Washington, our small business owners aren’t dumb. These are temporary payroll tax cuts. One of these days, the taxes will go back up and the new employees will cost more. Not to mention the mandated health insurance (or penalty in lieu of). What is needed is a firm, long-term policy. Then employers can plan and – if justified – hire people. The old saying goes that there are only two things sure in life, death and taxes. We can’t do much about the first one, but the lower the second one, the more jobs there will be. And that will lead to the higher revenues that Washington wants to fund the laudable goals they have set for the country.
If jobs are riding on a 3% payroll tax cut, we are in a lot of trouble. There have to be jobs to hire and the jobs don’t exist. Oh, wait a minute, they do, but just not at a wage that is better than living on the dole or unemployment benefits in this country. Why work when you make as much non-taxable income from all the government programs that hand out money as you make from the available jobs. This country has incentivized folks not to work. Reduce all the programs that pass out money to non workers and then there would be incentives for people to take the jobs that exist.
Don’t forget that 45 million workers pay no federal income taxes at all. In fact many receive tax refunds when they have paid no federal income tax. America has a long way to go to fix our spend more than you take in philosophy. What happened to fiscal responsibility in America? We buy what we can’t afford and then complain when it comes time to pay the piper.
Jacob@3, Todd@4, Bob C.@5: I’ve been mostly quiet in this comment thread because I don’t think the government can be relied upon to “create” private sector jobs.
But this is more than a government problem. One prime example: IT companies are desperate to find qualified help. Yet some colleges continue to offer majors like “Print Journalism.”
Imagine paying $20K to $40K per year for a diploma that sends graduates into a job market that may not exist in 5 to 10 years, while other majors can’t generate enough qualified graduates to meet corporate demands…
-jp
Print Journalism graduates are decent candidates for entry level IT (after all they are supposed to be good at documenting their work) at a fraction of the cost of Computer Science graduates (who normally stink at writing anything down) May not be such a bad thing after all…
Jacob: You’ve got a point… finding candidates who write well can be a challenging task across all job functions.
-jp