Why is anyone with a brain even talking about reducing the employers’ share of the currently required Social Security contribution? Haven’t we proven many times over that supply side economics does not work? It has never worked in the past and it will never work now or in the future.
I think we can all agree that small to medium sized privately owned businesses are the backbone of America’s economic strength. This is where the jobs we need will be created. But they will only be created if they are needed.
I am a management consultant. My reason D’être is to help small to medium sized businesses increase their profitability.
When we go into a client company at the beginning of a consulting project one of the very first things we do is analyze payroll costs and labor requirements for both line and administrative departments. Labor costs are a major component of almost all small to medium sized businesses. When we analyze labor costs we do it from one specific point of view: What is the labor requirement to produce the products the business sells or satisfy the services the business provides to customer or clients?
Small business owners need to make a profit over the long term to stay in business and support themselves, let alone anyone else. To accomplish this, if they are to survive in a competitive world, they must control their labor costs. Put another way, they can only afford to maintain and pay for labor being utilized to produce what they need.
This principal is true no matter what the unit cost of the labor may be. Just because the individual cost of a unit of labor may be reduced, that does not mean it is open season to hire additional labor if there is no increase in demand.
The reality of business life is that the only thing that generates jobs is “DEMAND.” Demand for products and/or demand for services.
A business only employs workers to produce whatever products or services that can be sold to customers or clients. Put another way, a business should only be willing to hire and employ someone if that business needs the results of that employee’s labor.
Building a car requires labor. I am willing to hire an auto worker if there is a demand for the cars that the employee is helping to build. A plumbing company will hire more plumbers only if they have customer demand in excess of their current capacity.
Why, then, is anyone thinking that lowering SS contributions by 2 percentage points would generate anything except a larger deficit? The reduction that was given to workers is different; they took the additional savings they received and SPENT IT. Spending increases demand. Reducing the emplyers share of SS would not have the same effect.
Would you hire an employee you don’t need just because you could save 2% on social security contributions? You still have to pay the other 98%. Let’s work the numbers. Assume you hire an individual you don’t really need to meet production goals. Assume a fairly low rate of $10 an hour. Annualized this would increase direct labor costs by $20,800 for a year (exclusive of other payroll related costs and benefits). The 2% reduction would save you $416 in payroll taxes so your net increase in cost would be $20,384. Just how stupid do they think small business people are?
I should add that this idea will be very much supported by the Republicans. Any action that reduces taxes, no matter what the purpose, they will support. What they won’t support and will fight to the end is trying to get what was supposedly a temporary action, reversed. Just wait. If this goes through the Republicans will take the position that ending the 2% reduction is a “tax increase” and is off the table.
This country is in a jobs crisis. We need more jobs. The Republicans are being guided by three major factors.
1) They hate Obama and will do anything to make him fail. From the day he was elected they have come out and bluntly stated that this is their primary goal and their actions back them up. They see the national debt as a stick they can use to beat down all opposition to their goals and actions.
2) They are adherents of a failed economic philosophy. Supply side economic plans are a failure but they keep pushing them. Their anti tax rhetoric is meant to stop progress towards correcting our economic problems. It has nothing to do with reducing the debt. Even worse, they have given away their authority from the voters by signing onto Grover Norquist’s “no tax pledge.” In my opinion this pledging of allegiance to some no tax increase pledge is a direct violation of their oath to support the Constitution.
3) The ends justify the means. If they have to hold the debt level hostage to their demands, no problem. The ends justify the means. If the only thing that will help the economy are additional stimulus projects; tough, the Tea Baggers won’t allow it.
Remember: there is a class war going on and you have to decide what side you are on!