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Tax cuts for jobs

Robb Mandelbaum offers some details on the administration's tax credit for new hiring:

A firm that hires a new employee in 2010 would get up to a $5,000 credit against its income tax. Alternatively, a company that hands out raises above the inflation rate in 2010 would get an income tax credit equal to the additional Social Security taxes it would pay on the increase. Although effectively similar to a payroll tax holiday for an employer, as an income tax credit, the raise incentive would not actually reduce payments to the Social Security trust fund.

The tax credit would be available to employers on a quarterly basis, which, the White House says, would encourage early hiring. It would also be retroactive to the start of the year. And while any business could claim the credits, they would be capped at $500,000 for each business. The administration estimates that one million businesses will take advantage of the credit.

The program is expected to cost $33 billion, and it'll be funded with TARP money. The basic idea here is to accelerate the job market. You won't create "new" jobs with a $5,000 tax credit, but you might convince a company that was going to hire in 2011 to make that investment in 2010 instead. That's good for workers, and not coincidentally, good for the administration, which would like recovery to come as fast and as soon as possible, preferably before the midterm elections. For more on the program, you can download this fact sheet (pdf).

By Ezra Klein  |  February 1, 2010; 12:59 PM ET
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I don't believe this is a sufficient incentive.

And open ended tax-cut that rewards companies with a .05% reduction in corporate taxes for each new hire, up to a 10% reduction in corporate taxes, lasting for the length of time those employees remain with the company, would be much more effective. Adjust it to the size of the company so that big companies with huge revenues would have to hire thousands of people to get 10% off their corporate taxes while small businesses would only have to hire 10 people to get 10% of their corporate taxes . . . and unemployment would drop 3 percentage points in 3 months--that's my projection. And I think it's a worthwhile as any other projection I've heard come out of Washington just recently.

As it is, these one-time, not-particularly-impressive tax credits aren't going to do it. They suggests to me that the Obama administration is not serious about using tax policy as a stimulus to job growth, but they want to look like they are.

Posted by: Kevin_Willis | February 1, 2010 1:34 PM | Report abuse

this is all good and all but you need to show small businesses that its sustainable. It makes no sense to hire someone if you need to lay them off (and deal with COBRA, ARRA, unemployment etc) 6-12 months down the line.

Posted by: visionbrkr | February 1, 2010 1:41 PM | Report abuse

No one is going to hire someone for a $5000 tax credit. It costs way more than that to employ people. This is some gobbly gook made up by professors who have never worked in the private sector and have no idea how it operates.

Posted by: columbiaheights | February 1, 2010 1:42 PM | Report abuse

When "columbiaheights" can discuss how exactly this policy was formulated and justified, then he can chime in.

Though I might add that it costs a lot more than $8000 to buy a house, but lots of people shifted their homebuying decisions forward to take advantage of the tax credit.

And visionbrkr, if a person worries that he's just going to have to lay someone off in 6-12 months, he's probably not going to hire anyone anyway.

Posted by: constans | February 1, 2010 1:57 PM | Report abuse

This bribe to companies to hire employees sounds like an invitation for fraud. The idea that someone is going to take on the sizable expense of hiring an employee because of the inducement of $5,000 in tax credits seems far fetched to me.

If you want to lower unemployment hire people. Start a WPA 2010 edition at the federal level to do all kinds of things, police the streets of Haiti, rebuild highways and bridges across the country, teach kids to read, on and on.

Posted by: zeppelin003 | February 1, 2010 2:17 PM | Report abuse

The bill is not complete yet so it's hard to make a fair judgment but on the face it seems to be full of many possible loopholes to scam the "new hire" tax credit.

I also have a problem with the idea of subsidizing raises. It seems a gateway to unions to demand higher wages (with federal subsidy) and veers far off course of the primary objective of simply creating new jobs instead of enriching those who already have a job.

Posted by: spamsux1 | February 1, 2010 2:23 PM | Report abuse

On the other hand, conservatives will tell you that a small increase in minimum wage or a small increase in payroll taxes will cause jobs to be eliminated by the thousands. How come it works in one direction but not the other?

Posted by: tl_houston | February 1, 2010 2:32 PM | Report abuse

@tl_houston: Well, if increases in the minimum wage or payroll taxes were one time, single-event happenings, there probably wouldn't be a complaint. But they don't raise the minimum wage for a year or increase payroll taxes for six months. If the $5000 credit were ongoing, indefinitely, for each new hire, it might spur some growth. But it's a one time event, and isn't that significant of one, and will not spur a meaningful amount of ongoing job growth.

Posted by: Kevin_Willis | February 1, 2010 2:36 PM | Report abuse

Didn't the Carter administration try something like this and it didn't really work?

Posted by: aawiegel | February 1, 2010 3:04 PM | Report abuse

I found this blog post and am wondering why Dems (referring to pols never make this argument about why the government can create jobs:

It's almost like we concede the Republican narrative that the private sector alone creates jobs. It's certainly true that sustainable job creation depends on the private sector, but it happens within the framework and upon the foundation created by government.

Posted by: akent07 | February 1, 2010 3:04 PM | Report abuse

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