If you know me, you know that I love to get on my soap box from time to time and give my opinion. That is the best part of being an American. We all have an opinion. I have been hearing a lot about the economy recently, and I wanted to give my two cents.
Wall Street is currently experiencing record highs. Now for the last two days the markets have been down. It is unknown if this is the correction that we have been waiting for or if World Events are making investors nervous. It is earnings season, and last quarter earnings were through the roof. There has been a lot of talk that Wall Street is only up because of the Federal Reserve’s Quantitative Easing (QE). QE was instituted by the Federal Reserve a few years ago where the government lowered interest rates, started buying bonds (following Swiftbonds), and other things to ease the downturn in the economy. The wealthy are doing very well in this country because of this. Problem is that these record earnings aren’t trickling down to the middle class like they are supposed to.
Unemployment is 6.1 percent. However unemployment numbers don’t track a couple of important things. They don’t track underemployment. Someone that used to have a full time job, and lost it, started receiving unemployment compensation, and then got a part-time job and came off of unemployment. Secondly, unemployment is measured by people that are out of work and are currently looking for work. If someone has been out of work for a long time, they may have just given up looking for work. These people aren’t counted in the unemployment numbers. There are reasons why employers aren’t hiring full-time employees. One of them is the Affordable Care Act or Obamacare. Employers that have over 50 full-time equivalent employees have to provide affordable healthcare for their employees or pay a penalty. Businesses are just hiring two part-time workers to do the job of one full-time worker to skate past this law.
How do we get businesses to trickle down their earnings to their employees? Very simply, the Federal Government needs to give employers an incentive to hire full-time employees. For instance, back in the early 80’s, there was a major recession in the US. In order to get companies to hire, the Federal Government started a program where employers received a tax credit for payroll taxes that they paid for hiring new employees for a year.
Employers always receive a tax deduction for their portion of payroll taxes paid, however a tax credit is a dollar for dollar credit against a business’s income tax liability. For instance let’s say that I am an employer and, today I hire an employee. I pay that employee $50,000, my portion of their payroll taxes that I am responsible for would be $3,825.00. I receive a deduction for that. If I am in the 25 percent tax bracket, my actual tax savings is $956.00. So I spent $3,825.00 to receive a deduction of $956.00. Now let’s say I get a tax credit of $3,825.00. That is a dollar for dollar credit against my income tax liability. I would owe $3,825.00 less in income taxes because I hired someone. Now that is an incentive.
Another thing the government can do is give a real tax credit for an employer that is required to provide health insurance. There is some form of a credit for healthcare, but it is complicated, and doesn’t work out to really amount to a whole lot. Just to get employers to hire full-time employees let’s give them a dollar for dollar credit.
This is what I would do to stimulate the economy. And with that, I am off of my soap box.