How effectively could it address America’s unemployment rate?

provided by Los Angeles Financial Planner, Rose Greene, CFP®

How about a tax break for companies that hire? A new jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV) proposes major tax incentives for hiring businesses. If the bill becomes law, will these incentives make a dent in the unemployment rate? Or will they matter little? Not everyone is optimistic.

On February 24, the $15 billion job creation measure passed 70-28 in the Senate and headed for the House of Representatives.₁ Just what is in this Senate bill?

The big perk: the “Hire Now” tax cut. If the bill becomes law, a business that hires someone who has worked less than 40 hours in the previous 60 days could skip paying its share of the new hire’s Social Security tax for the rest of 2010. That’s 6.25% of the employee’s salary. Companies could realize a payroll tax savings of up to $6,622 per new hire. (In case you are wondering, the federal government would reimburse the SSA for the lost taxes.) _2,3,4

If the new employee lasted 52 weeks on the job, the business would get a $1,000 tax credit on its 2011 federal return.₃

In Need Of Repair

The other perks. The Section 179 deduction limit for small business capital purchases was raised to $250,000 for 2009, and this bill would keep the limit at $250,000 for the 2010 tax year. The “Build America” bond program would be extended and expanded – that’s the program created to help state and local governments raise funds for infrastructure projects. The current federal subsidy for state highway spending would also be extended._1,2

The fine print. Any private-sector employer, any non-profit organization and any public-sector college or university would qualify for the “Hire Now” tax break. While a business that owes no tax could not get the $1,000 new-hire tax credit for 2011, it would be allowed to carry that credit forward to the future. There would be no limit on the amount of new employees a business could hire en route to claiming the credit.₈

Is this really going to make a difference? Well, Sen. Reid believes that the bill could create and save as many as 1 million jobs. Analysts feel that may be stretching it. Economic Policy Institute economist Heidi Shierholz thinks the measure could result in “tens of thousands of jobs, but it is absolutely nowhere near big enough” to reduce the unemployment rate.₃

Under the bill, a “new” hire does not have to be an additional employee. It can also be a worker replacing someone who quit or was fired.₃ So service sector businesses with high turnover might get some major tax breaks. There might be a lot of hiring among such companies, but not a lot of net job creation.

Is another bill just ahead? According to The Atlantic, Sen. Reid plans to introduce a second jobs bill with much greater scope. This proposed (and almost certainly more expensive) legislation would extend jobless benefits and COBRA for millions, as well as numerous tax credits and programs scheduled to sunset. State Medicaid funding would be extended and Medicare physician payments.

would be updated through this bill as well. While The Atlantic says it has copies of the bill, Sen. Reid’s office has not yet confirmed its contents. The Senator has mentioned rolling out multiple bills in the next few weeks to address the country’s unemployment problem.₅

Rose Greene is a Representative with Rose Greene Financial and may be reached at http://www.rosegreene.com, (310)399-1200 or rose@rosegreene.com

This material was prepared by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.
1 marketwatch.com/story/senate-sends-15-billion-jobs-bill-to-house-2010-02-24 [2/24/10]
4 boston.com/business/personalfinance/managingyourmoney/archives/2010/02/tax_incentives.html [2/24/10]
2 sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/24/BU3H1C6M8V.DTL [2/24/10]
4 online.wsj.com/article/SB20001424052748704240004575085410014175900.html [2/24/10]
5 politics.theatlantic.com/2010/02/the_next_jobs_bill.php [10/25/10]

Events and data in recent weeks have prompted market participants to view the tailwinds that caused the markets to go sailing higher for much of 2009 as beginning to fade. They now view them as having become more balanced with the rising headwinds associated with increasing global frictions.

We continue to expect the powerful economic and profit growth to weaken in the second half of 2010. The weakening is likely to result from the fading of the extraordinary global policy efforts that created a tailwind for growth and the rise of new headwinds as some actions are reversed. The early stage of this transition is already underway leading to heightened market volatility. While there is still plenty of good news acting as tailwinds for the markets, there is increasingly more of a balance with the bad news, or headwinds. The winds of change blowing in the markets include the following:

Tailwinds

1. -The Federal Reserve (the Fed) is our friend (for now)
2. -U.S. Gross Domestic Product (GDP) growth is above average
3. -S&P 500 earnings growth is strong
4. -Credit and housing markets continue to heal
5. -China’s double-digit GDP growth (but slowing loan growth)
6. -Steep yield curve
7. -Massive global fiscal stimulus in the pipeline

Headwinds
-No job growth (yet)
-Federal, state and local budgets are awful
-Anti-business tone in Washington
-Commercial real estate woes remain
-China and India inflation risks
-European debt problems exacerbated by weak economies
-Bank lending is weak

These are not in any particular order since the importance placed on them by the market varies from day to day. Some of them will switch from being tailwinds to headwinds this year, like the actions of the Federal Reserve, while others may switch from being headwinds to tailwinds such as job

Want more details?  Click here to explore each of the winds that are currently driving the choppy market environment.

LPL Financial Research Weekly Market Commentary

Joblessness at 10.0%. This November figure is improved from October’s 10.2% mark. Another bright spot: payrolls slimmed by just 11,000 jobs last month.  (Analysts expected a reduction of around 125,000.)  Are we on the verge of  adding jobs to the economy?  The number of employed people rose by 227,000  last month, the first increase since April.1

Read here for the rest of this week’s economic update:

http://tinyurl.com/yhtom32