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The Back-to-Work Bonus Is a Bad Idea. Do the Payroll Tax Holiday Instead

By Peter RoffNewsweek

Congress spent too much money trying to keep the economy afloat during what looks to be the increasingly ill-advised coronavirus lockdown. The effort to flatten the curve to keep hospitals from being overwhelmed quickly transformed into something more that is only now, and mostly in the so-called red states, easing up.

To cushion the blow, the House and Senate passed, and President Donald Trump signed legislation distributing trillions of dollars, many of which had little, if anything, to do with COVID relief. One of the most objectionable, one that distorted the labor market badly, was the provision guaranteeing a “temporary” $600 weekly bonus on top of regular unemployment payments for workers state government decided needed to stay home in the interest of public safety.

For more than a few of them, that bonus lifted their unemployment income above what they’d been making on the job. Stories about the difficulties involved in getting these people to come back to work are already legion and will continue to be so, especially as House Speaker Nancy Pelosi and the Democrats have made the extension of unemployment benefits and bonuses a priority for the next round of relief.

If there’s a more stupid idea out there, it’s hard to find. Paying people to stay home is about as silly as paying farmers not to grow anything—yet that was a hallmark of U.S. agricultural policy starting with the Great Depression and continuing through to the Clinton years, when Newt Gingrich’s Contract with America Congress put a stop to it. At least for a while.

Unfortunately, foolish ideas abound among legislators, even well-meaning ones like former House Ways and Means Committee Chairman Kevin Brady. The Texas Republican, who is now the committee’s ranking member, is proposing a $1,200 back-to-work bonus to get the economy moving again.

His plan, which he’s calling the Reopening America by Supporting Workers and Businesses Act of 2020, would cost less than some of the items on Pelosi’s wish list, but that may be the only thing about it that’s virtuous. Brady says he’s “trying to help Main Street businesses rebuild their workforce by turning unemployment benefits” into an incentive for workers to return to the job.

He says that will accelerate the economic recovery. Call me doubtful. As Nobel Prize–winning economist Milton Friedman and others have consistently argued, the money that comes out of the private economy does not produce as much growth as the money that never leaves it. The Brady plan is a circular exercise, with the government taking money from the earnings of workers and businesses through taxes and then giving it back to them as a “re-employment benefit.

Outside Washington, the argument that the answer to the problems created by subsidizing unemployment lies in a program to subsidize re-employment would be met with silent stares—justifiably so. Letting the bonus expire, as it will do under current law, would be a good fix in the short-term, but politicians need greater guts than many of the current crowd seem to have to oppose the extension of unemployment benefits when so many of them have filed for them since mid-March.

The difference between now and what is usually the case, however, is that in the main jobs are there for the taking. The unemployment we’re currently experiencing results from the COVID lockdown, not a business downturn that occurred for any of the usual reasons. Bolder, braver initiatives are called for.

One that’s one the table, which some in the White House like but the bean counters at Treasury hate, is a partial payroll tax holiday running from March 1 (when the lockdown started to approach peak levels) and the end of the calendar year. All in, including the deductions for Medicare and Medicaid along with what’s taken out for Social Security, that gives business owners a little over 15 percent of wages up to $137,000 out of which they can incentivize workers returning to work on broad terms and still have something left to help cushion them from the economic blow the lockdown caused.

The arguments against this plan are few and come mostly from the usual suspects. Some say it would jeopardize the health of Social Security, but as the so-called “trust fund” is mostly an accounting fiction, most of the money comes from general revenue. Others argue it would add precipitously to the deficit, which may be but not by more than what Brady, Pelosi or anyone else is proposing. Most of the politicians who hate it do so because it means they’re not in the position to ride to the rescue by passing out relief. That’s a silly reason to reject a good idea. Help the country. Do the payroll tax holiday legislation. Then go home.


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