No Income Tax for the Unemployed. That is stimulus.

Another month has gone by with dismal job numbers. As you know I am advocating a 300,000+ jobs addition per month to get us back on track. Once again we have fallen tremendously short of where we need to be. The politicians continue to do their politicking, and not provide any stimulus or solutions to how unemployed people will get employed.

So yet again – here is another idea – People who are currently unemployed get a tax vacation on their income tax for the next two years.

This would allow employers to pay people anywhere between 18 to 38% less then the market would bear. This is a significant incentive for employers to employ somebody who is currently unemployed. They can offer salaries and bonuses and commissions that are comparable, but clearly less. This would allow employers to be more aggressive with their headcount growth and would significantly increase the number of people who would be hired who are unemployed. There is a tremendous bias in small business and corporate America regarding the hiring of long-term unemployed personnel.

If you think about it, those unemployed personnel are not paying any income tax anyway. They do not receive an income. In fact some of them receive benefits because they are not employed, which ends up costing the government even more money. If we have those people go back into the labor market, we eliminate their government subsidy, we encourage their ability to purchase goods and services at the consumer level (thereby increasing consumer confidence), and the government actually saves money.

Now I know that the government will not receive any income tax associated with that personnel, but they’re not receiving any of that money now anyway. So you might as well just call it a day and get those people back to work so they can at least boost consumer confidence and get off the government ticket.

So let’s advance 24 months. The people who have been recently employed obviously now are somewhat underpaid. They now have to pay taxes, and it’s likely that they only got merit increases of 5% to 7% each year over the last two years. They now have to pay income tax that exceeds their recent increases. This is an excellent opportunity for that employee and that employer to go back to the normal pay structure. Enough time has elapsed to offset the difference and to have that employee prove their performance.

A move like this by our administration will stimulate job growth. It is a significant difference in costs for an employer, and greatly offsets any kind of increase that would be associated with other increasing expenses like healthcare.

You could also extend similar benefits to unemployed veterans, and even extend their income tax holiday even further.

Is this a viable option? I think it is. With this pass in our Congress? Maybe. It is fraught with revenue peril. The actual concept of offering a tax holiday on people’s income would likely scare any budget committee. It completely flies in the face of any kind of large government policy agenda. Large government policy agendas typically require significant capital. The sheer volume of personnel that would be hired is likely in the millions over the next 6 to 18 months. That is a lot of revenue that the government would have to give up. That is difficult to do given our deficit, our spending, and trade agreements.

However, this could easily be considered a socialist agenda. There are lots of people who are under employed (meaning they are paid less than they are worth) and this keeps those personnel in the jobs that they have, and makes it more difficult for people who want to leave their jobs and advance into other jobs as there is the ability to undercut them in the marketplace.

I can tell you that that is a initial and logical reaction. But in the staffing world, we make judgments like this all the time. Positions are escalated based on who applies. So what would happen is that recruiters would look at people who are unemployed first, and if they cannot find anybody who’s unemployed to fill the position, they simply would then go ahead and start looking at employed personnel. It is almost the exact same process that is used when considering if you should offer a position to somebody who is local versus offering it to someone who you have to relocate. When you can’t find somebody local you simply go outside your local region.

I am sure there are some holes in my theory. I am not an economist, and I don’t know what would be the repercussions of adding a labor force that is willing to take 15 to 38% less than their normal wage for a period time would be. But then again, I’m just trying to get people who are earning any income back to work.

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