Health, climate bills seen to stifle hiring

While President Obama and congressional leaders say they would like to do more to spur job creation, economists and business executives warn that their plans to impose new health care and climate-change costs on corporations would have the opposite effect.

The initiatives, according to this analysis, are likely to overwhelm any positive impact on jobs from stimulus measures by giving businesses a reason to keep laying people off.

The House’s health care bill would raise the cost of hiring in a straightforward way: by charging businesses a new payroll tax of up to 8 percent if they do not provide health insurance to workers. The Senate plan would impose smaller fines on those same employers.

The House-passed climate-change legislation would not add directly to the cost of hiring, but would raise energy prices, which are a major cost of doing business. Economists say that many companies would react by hiring fewer people.

Employers have been on a firing binge of historic proportions in the past two years as they cut their costs to stay in business, leaving nearly 16 million Americans unemployed and unable to find jobs.

Trying to reverse this trend is a top goal of nearly every political leader. Mr. Obama and congressional leaders are scrambling to find new ways to spur job creation, including possibly resurrecting a decades-old tax credit for employers who add jobs.

But economists warn that lawmakers in the meantime are neglecting the impact on hiring decisions caused by their ambitious plans on health care and climate change.

The legislation has “perverse economic effects,” said John Silvia, chief economist at Wells Fargo Securities. “Health care mandates will likely raise the cost of labor and thereby discourage hiring,” while “cap-and-trade will likely increase the cost of energy and transportation for employers and thereby reduce any funds left to hire workers.”

Labor costs — including hiring new employees and giving them health benefits — are the biggest cost for nearly every business, with energy costs not far behind. Even for employers who already provide health insurance to their workers and have striven to achieve energy savings to cut greenhouse-gas emissions, the uncertainty about what Congress will do “is more than offsetting any positive impact from the fiscal stimulus,” Mr. Silvia said.

The uncertainties are particularly acute for manufacturers, power companies and other businesses such as oil and mining firms that might be affected by the large potential costs of a cap on energy-related emissions, contributing to the reluctance of these industries to start adding jobs despite the nascent recovery in the economy.

Most industries, rather than adding jobs, continue to lay off thousands of workers. The looming new health care and energy mandates have only added to their preference of meeting increased demand by asking their existing employees to work harder — leading to a soaring increase in productivity this past summer.

Business groups have persistently warned about the employment consequences of the congressional proposals. Associations representing thousands of small businesses that do not offer their employees health insurance, in particular, have complained that the legislation would make it harder for them to stay in business and hire new workers.

David French, vice president of the International Franchise Association, said the House bill would impose $700 billion in new taxes on small businesses through the new payroll-tax penalty as well as a 5.4 percent tax surcharge on people with incomes over $500,000, which includes many small-business owners who have not incorporated their business and report business income on their individual tax returns.

The legislation “will lead to the failure of many small businesses and continued job loss,” he said, adding that his association had hoped Congress would at least offset the increased costs on business with measures that would have lowered their overall health care costs.

John Engler, president of the National Association of Manufacturers, said the health tax surcharge would hit an estimated 70 percent of U.S. manufacturing businesses that are not incorporated and likely will worsen already steep job losses of 2.1 million in manufacturing during the recession.

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