Obama Jobs Act: Payroll Tax Cuts = Small Business Hiring?

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.

TAGS: Leadership
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