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Forget More Stimulus Checks -- This Proposal Wants to Pay Employers to Hire You Back

By Dan Caplinger - May 10, 2020 at 12:04PM

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A radical idea is getting bipartisan support in Congress.

Tens of millions of Americans have lost their jobs as a result of the coronavirus pandemic, with government-mandated business closures and stay-at-home orders sending unemployment rates to unprecedented levels. So far, much of the federal government's response to try to shore up the U.S. economy has centered on getting money to Americans quickly, most visibly through the $1,200 stimulus checks that have already started going out.

As the coronavirus crisis goes on, though, legislators are looking seriously at a fourth round of efforts to stimulate the economy. Some are calling for additional recurring stimulus checks in the neighborhood of $2,000 per month to go out to Americans in need. However, one proposal is looking to take a different tack by attacking unemployment directly and trying to get more Americans back to work.

U.S. Capitol building as seen from side of front steps, with blue sky above.

Image source: Getty Images.

Paying employers to hire their workers back

Sen. Josh Hawley (R-Mo.) proposed a phase 4 relief plan last month designed to cut closer to the root cause of the economic crisis America faces right now. Rather than simply paying money out to people directly, Hawley believes that the better course is to keep as many people employed as possible. That way, it'll be easier for businesses to get back to work as coronavirus control measures slowly phase out over time.

The basic idea in Hawley's proposal is pretty simple. Employers are laying off their workers because they can't afford to pay them when their businesses are closed and not bringing in any revenue. Government programs to try to encourage employee retention, such as the Payroll Protection Program, have been fraught with issues that have limited their effectiveness. Hawley would cut out intermediaries like lending institutions and instead get money directly to employers on the condition that they use it to rehire their employees.

What's a negative payroll tax?

Where Hawley's plan has run into some controversy is in the mechanism it uses to get money to employers. The Missouri senator would use a refundable payroll tax rebate to reward employers for helping their workers, essentially covering 80% of a worker's pay up to the median U.S. wage level. To get the money flowing, the government would provide for real-time advances for immediate support. Instead of employers paying payroll taxes to the government, the government would instead reverse the money flow and put money into employers' bank accounts.

In addition, Hawley would provide for additional tax credits for businesses that need to invest in order to get back up to speed once the crisis lets up. That would provide an incentive for ailing business owners to stay the course in the hopes of prospering once the economy reopens.

Other provisions would address some of the criticisms of past stimulus packages. Measures to promote U.S. manufacturing would help avoid the supply chain disruptions that resulted from dependence on foreign sources for vital items like personal protective equipment and medicines. At the same time, Hawley would beef up antitrust regulation and investigate potential securities law violations to counter Wall Street opportunism.

Can the idea succeed?

Some legislators have sought to go even further than Hawley's proposal. For instance, Rep. Pramila Jayapal (D-Wash.) suggested a similar plan that would cover salaries and benefits in full up to $100,000. That's considerably greater pay than the roughly $30,000 to $50,000 in pay that the Hawley plan would cover, but it shows that lawmakers on both sides of the aisle are thinking about the problem in similar ways.

The proposal has also gotten support from prominent leaders like Arthur Laffer, former economic advisor for the Reagan administration and a member of the White House Economic Recovery Task Force. Yet at this point, Hawley hasn't gotten much support from lawmakers in his own party.

Right now, there are a lot of ideas on the table for a potential phase 4 stimulus bill, although not everyone believes that the federal government should spend more money on further economic support. If the coronavirus crisis lasts a lot longer, though, ideas like Hawley's might end up being the foundation of a compromise on Capitol Hill that members of both major political parties can get behind.

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