The HIRE Act

I don't have the statutory language, but here is the summary of the bill the Senate is sending to the President to help create more jobs:

The tax break exempts an employer from paying the employer's share of Social Security payroll taxes for any new employee hired from February 4 through December 31, 2010, if the new worker was previously unemployed and is filling a new job rather than replacing another employee. Businesses also can earn a $1,000 tax credit in 2011 for each such employee who remains on the payroll for 52 weeks. 

I knew that the new employee had to have experienced 60 days of unemployment.  I guess the idea is to steer jobs away from new college graduates, back toward those who already have a work history.  I don't see the wisdom in that, but maybe that's just me.  

But what's this about it being a "new job"?  Say my employee quits, I need to hire a replacement, so I pick an unemployed person—I don't get the FICA waiver or the credit?  Why not?  If that's how you feel about it, I think I'll just split the work up among the remaining employees.  I call this making a poor idea even more stupid.

Here's the part I really don't understand.  Allegedly this bill will "cost" $13 billion.  How could the bill cost anything at all, if it actually creates jobs and so generates new tax revenue and eliminates unemployment payments?  I take it that, contrary to the stated purpose of the legislation, the revenue score must assume that all the jobs would have been created anyway, so we are toting up the totals of uncollected FICA and the total number of $1,000 credits that will be claimed, with zero offset for the FICA paid by the newly hired employee and zero offset for reduced expenditures on the unemployed.

If that is the case, how many jobs will be "created" by the legislation.  The answer seems easy enough, just divide the revenue lost in 2011 by $1,000.  As $2 billion will be lost, 2 million jobs will be created.  I call that unlikely, but leave that aside, because it isn't so easy.

According to the Joint Tax Committee, the $1,000 retained employee credit for 2011 loses another $2 billion in 2012, nearly $500 million in 2013, and has a ten-year cost of $5 billion.  Is that because the credit can be carried forward if it exceeds the employer tax liability?  Since the cap on the credit is still $1,000, that seems to say that 5 million "new" jobs will be created in the remainder of the year (well, since February 4, the effective date of the legislation), that they will all be filled by people who have been out of work for 60 days, and they will all stay on the job a full year.

5 million?  Really?  Great news if true, but to me this looks like an absurd overestimate of the "cost."  Why might they do that? Because it creates a larger target for justifying new taxes to pay for it, which is exactly what they did.