by Henry Oliner

The bailout package had a provision requiring businesses to increase mental health and substance abuse benefits substantially if you have 50 or more employees. If you only had 45 employees and an investment in a new piece of machinery could add 7 new employees you may likely pass on the growth opportunity because crossing the 50 employee threshold would raise your marginal cost per employee so high that the benefit is negated. The result is that 7 jobs were not created and the capital equipment manufacturer missed a sale and thus he lost an opportunity to create jobs as well.

There are proposals floating around that would give tax credits for newly created jobs. Let’s say that you are an existing company and you have struggled to maintain your payroll and existence for years. Now a new competitor opens up and since he is seen to “create” new jobs he is given a $3,000 tax credit per job created. This gives him a significant advantage especially if it is a labor intensive business. This will hurt the old business that has been creating jobs without government assistance and tax credits for decades. It is likely that for every job the government “creates” with this new tax credit one or probably more were lost as a result.

The idea that larger businesses can somehow tolerate higher mandated costs and taxes per employee is inherently false. By exempting businesses below a certain employee threshold the government is admitting that their policies are destructive; they just pretend that the destruction will not impact larger businesses. They are wrong.

In fact those that do respond to these new incentives do not last. Their business plan is more likely to be reliant on government largesse than sound economics, and it is more likely to fold when the government policy changes. And it always does.

This is why the desire to micromanage the economy, especially by the parliament of whores and lawyers who have never met a payroll or run a business is doomed from their first regulation.

All of their much heralded job creating policies will likely have the opposite effect.

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