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Bill Leonard

Want Job Growth? Lower the Cost of Labor

As far as the “jobs, jobs, jobs” mantra, we can spend with borrowed money, which is not popular with voters, or we can look at what is right in front of our noses.  To stop the hemorrhaging of jobs, the obvious thing for government to do is lower the cost of labor by cutting back on payroll taxes paid by employers and workers.

I plugged in data for an imaginary California worker making $45,000 a year who is single with no deductions and here is how it breaks out:

Gross pay (per month):           $3,750
Federal income tax:              $543
FICA (social security):          $232.50
Medicare:                        $54.38

So already out of a gross pay of $3,750, this hypothetical Californian has over $829 taken out by the federal government before he gets a dime.  But we need to add California’s payroll taxes.

California has four State payroll taxes which are administered by the Employment Development Department (EDD). They are Unemployment Insurance and Employment Training Tax, which are employer contributions, and State Disability Insurance (SDI) and Personal Income Tax (PIT), which are withheld from employees’ wages.

So if we add another $41.25 withheld for SDI, along with $159.98 for state income tax withholding, the worker is left with just $2,720 out of a gross pay of $3,750.  It boggles my mind that workers are not rising up in protest.  Think of all the people who are scrimping to save $20 here and there to make ends meet.  Imagine what a temporary holiday from withholding taxes would do compared to various stimulus programs tried so far.  I find it obvious that allowing workers to keep the money they make would relieve a lot of angst and provide major stimulus to the economy.

This has a direct effect on the cost of labor. If payroll taxes were not so high, employees could get higher take home pay at less cost to the employer.  So employers could afford to hire more people while increasing take-home pay for all workers.

As far as withholding taxes employers pay, already mentioned are Unemployment Insurance and Employment Training tax.  Add to that workers’ compensation expenses which vary but add significant cost for employers.

I am urging a temporary suspension of these payroll taxes.  But going forward, Republicans should begin a dialogue with workers in this country.

One Response to “Want Job Growth? Lower the Cost of Labor”

  1. Says:

    And, of course, employers are responsible for matching the employee’s FICA and MediCare taxes, which totals another $286.88 in your scenario. Plus, Federal unemployment tax.