Will Job Tax Credits Put America Back To Work?

(AP Photo/J. Scott Applewhite)

Check out this Forbes piece by Newt Gingrich and Dan Varroney on how to reignite the jobs market. Unfortunately, there's little new here as Gingrich and Varroney essentially offer a best hits compilation left over from the Bush era. Don't claim surprise. (After all, the publication does call itself a "capitalist tool.")

But at least they've got their thinking caps on and with the unemployment rate nearing the 10% mark, the administration's hardly in a position to peremptorily dismiss good advice. The trick is to find an economic recipe that will work in what are admittedly extraordinary economic times. Even after monumental adjustments in fiscal and monetary policy, the latest data from the government show that federal spending has saved or created just 30,383 jobs. (On MSNBC's "Morning Meeting" Friday, the chief economist for Vice President Biden, Jared Bernstein, said the snapshot was a preliminary estimate and that a more accurate number would be closer to 1 million jobs saved or created, or roughly 2 to 3 percentage points of GDP growth in the third quarter.)

Whatever the final tally, however, the employment outlook remains grim. That's why a tax credit proposal by a couple of labor experts writing a paper for the Economic Policy Institute - where, parenthetically, Bernstein used to work as a director - is starting to garner attention. Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research and John H. Bishop of Cornell University make the (I think correct) argument that traditional stimulus policy does little to put people back to work in a hurry.

In their paper, Bartik and Bishop lay out an argument for a new tax credit targeted at businesses. For a nation weary - and wary - of taking on more debt, this is not another TARP-like giveaway. The cost of a marginal cut in the cost of hiring would be $28 billion in the first year. Uncle Sam would recover half that amount because it would be spending less on social welfare programs such as unemployment insurance or Medicaid.

The credit would be equal to 15% of expanded payroll costs and the payoff, according to the authors, is another 2.8 million people hired over the next couple of years.

"In the first year the credit would be equal to 15% of the net increase in that portion of a firm's payroll subject to Social Security taxes," they write. "In the second year the credit would drop to 10%. This would encourage firms to hire sooner rather than later, and would provide a significant incentive for expanded employment. Furthermore, this is a time period when new jobs are clearly needed."

What with Democrats and Republicans sniping over everything from health care regulation to Afghanistan to Roger Clemens, might this be one policy proposal both sides of the aisle can rally around? On the one hand, it has the appeal of a grass-roots incentive where entrepreneurs and businessmen decide, not some faceless bureaucracy in Washington. Music to Republican ears. At the same time, it would put more people back to work at a time when the lingering effects of the longest recession since World War II keep pushing up the unemployment rate — or at least it would in theory. What Democrat could say no to that?

In The Atlantic, Derek Thompson correctly notes that tax incentives are vulnerable to being gamed. He points out that "employers might try to rig the system and apply for tax credits for existing hires or ones they already planned to make. Another potential hitch: Firms that "fire workers before the start date of the credit and hire them back when the credit kicks in, which would effectively mean the government's just handing out money to the companies."

I suppose that's why we have regulations. Sometimes the connivers do get away with murder but that's hardly sufficient reason for inaction. Fact is that the Fed, which has already cut short-term interest rates virtually to zero, can't do much more to stimulate investment demand. Wall Street may be living large(r) with the Dow back around the 10,000 level, but the runup in the stock market is not doing much for Main Street. Whatever "green shoots" are peeking through the ground, it's still slim pickings out there. Bartik and Bishop sum it up this way:

"The freeze of financial markets last fall destroyed business confidence and led to big cuts in employment and capital investment...Is it realistic to hope that the (job creation tax credit) will help reverse the pervasive pessimism that is undermining employer confidence that investing in new products and services will be profitable?"

Worth a shot, no?

[maiingan]

I've been thinking about this a lot longer than your "somebodies" have! CBS News should report on my ideas! Tax incentives to employers must be restricted to people who've either run out of unemployment compensation, or whose benefits are less than what we'd net from full-time work at minimum wage. This is the absolute floor. Also, incentives should not be provided until after the employee hired under this program has at least 1 year of full-time pay in the regular benefit year for any new unemployment compensation claim, AND has given written approval for the incentive. Employees hired under previous and existing "favored groups" tax incentives have been sometimes mistreated and exploited. Ending long-term unemployment (and unemployment comp. less than minimum wage) is the most important thing to start with, even if it looks like musical chairs. At least we get to sit down often enough. There could also be sharing of a group of similar jobs by a group of similarly capable people - another version of musical chairs. E.g. 5 people who need work, and only 4 jobs? Rotate in & out. We also need a new WPA so Uncle Sam has an inventory of the economic potential that's being wasted by unemployment, and will meet us in the middle instead of setting out grand plans which are legitimate in themselves (e.g. fixing bad roads & bridges), but don't do enough to clear the market of the Americans who are actually unemployed now, and frankly don't really want to earn our living by featherbedding. I would like to know if CBS News reads our Comments in a respectful manner, considering that some might actually be worth reporting on, or if they are only concerned that we obey the "Rules of Engagement" as we third-class people chatter amongst ourselves while being completely ignored by the people running the country and the economy.

[timetocomeclean]

Another trickled down trick is right!

The employers could hire bodies to try to pressure existing workers to take wage cuts and have to endure Taliban like repression in hopes of turning over their workforce. If this is such a good idea lets get Newt Gingrich to fork over some of his pile of cash to start a new business to show us how its done!

One easy answer, change the legislation that forces new startup companies to expense exployee stock options. You will see a new
wave of competitors and that will force everyone to be on their toes.

If they can get and give unrestricted employee stock options many existing employees will quit their plantation mentality firms that have benefitted from 8 years of Bush-Cheney-Rumsfeld-Rice abuse and when they leave others can be hired.

Its a new era, let's employ trickle-up policies and the sooner Mr. Obama sees this it will throw a lot more people on the team by default.

Trickle UP, UBER ALLES!!

[brianbwb-2009]

More failed trickle down garbage.

There is only one way to revive the economy, and that is to put money into the hands of what used to be the working class, and let the demand cause businesses to increase production. Reagan's supply-side economics was rightly called "voodoo economics for a reason which is now quite obvious.

The reason tax credits will not work, is that the few new jobs created will only last as long as it takes for the company to realize the cash savings, then the few newly hired workers will be again thrown away.

Demand will not be stimulated, because there will still be no critical mass of consumers able to afford to buy anything, as the first priority when they get money will be to pay off old debts, not incur new ones.

Long term prospects exist only if we decide to modernize and upgrade America's cities, and connecting infrastructure, creating long-lasting mega-projects, providing long term employment. Only then can people, government, and business make any kind of reasonable long-range plans.

If the private sector cannot, as they have shown over the past 35 years, then the public sector must.

[smac761]

How about the government just get out of the way and let the productivity of American people revive the economy. The goverment has already done too much- their doing stuff is killing this nation.

[brianbwb-2009]

That was tried, Reagan started it, and with each step of added leeway, businesses simply sucked up the money, and kicked the real producers to the curb.

We got out of Enron's way, look what happened, Also the airlines, Wall Street, the banks, insurance, and automotive, you name it all failed because of greed.

[sjc_1]

Rather than a tax credit, I would prefer some direct investment in new business that does good for the country. New renewable energy businesses will provide us with more energy independence and less dependence on foreign oil. More efficient cars and buildings will allow us to use less fossil fuels, cleaning the air and creating good jobs that last.

[brianbwb-2009]

Point well made, there is no use subsidizing obsolete businesses, when we should be creating new, more efficient ones. The current GOP-led approach (which the Dems seem to passively accept) is akin to subsidizing the livery stable industry.

[sjc_1]

I do not care as much if they are old nor new businesses, but we need to provide goods and services that are good for the country, but not wildly profitable. I know people that could provide jobs for millions, if they could ONLY get the money to get started and keep going. We are going to have to think in new ways if we are to avoid the mistakes of the past.

[rightbehind]

All contract labor needs to be stopped. Many contractors work unknowingly as pack mules for upper management. The management outsources good jobs to contract companies who in turn give kickbacks to management. In some cases the management owns the contract company. It robs the employee of the benefits and prevents them from organising. I say make all temp positions last no more than 4 weeks at one company and the contractor by law has to move on. The company will either keep them as permanent or let them move on. It will at least encourage full time employment for the ones they want to keep. As for the others they would have been sent packing anyway.

[brianbwb-2009]

Not a bad idea, but it does not go anywhere near far enough, most jobs were lost not to contract labor, but were outsourced to slave labor tolerant countries.

Rebuild America, one cannot import a building, or a road, or a telecommunications network, or a power grid, these things need labor on site.

Simply slow down migrant and imported labor, tax those who use it to the point where it is cheaper to use domestic labor at a decent wage.

Again any further trickle down is doomed to failure, it is about time politicians took note of the evidence before their own eyes.