by Oliver Fultz
12. October 2009 17:18
There is growing support from a wide range of government officials and economists for a tax credit to companies that hire new employees. The idea is gaining bipartisan support in Washington as the government looks for solutions to the highest unemployment figures in a generation.
Various proposals for job tax credits are currently being considered. One plan, by economists Timothy J. Bartik and John H. Bishop, would provide a first year tax credit equal to 15% of the cost of adding each new employee. In the second year, the tax credit would decline to 10%. The economists claim that this approach would generate 1 to 2 million new jobs in the first year.
The concept of offering tax breaks to companies that hire new employees is not new. The federal government offered a “New Jobs Tax Credit” from 1977 to 1978, in response to the recession that occurred in the 1970s. The program at its peak provided tax subsidies to 1.1 million businesses that added 2.1 million workers, at a cost of almost $4 billion (or a cost of $13 billion in today’s dollars). Or, put another way, it cost about $7,000 per additional worker added.
During the recent presidential campaign, then-candidate Barack Obama supported the concept of a tax break for companies that hired new employees. However, the Obama administration abandoned this concept in early 2009, as many Democrats suggested that a tax credit for jobs would be abused by businesses or that it would be difficult to administer, and the plan was dropped from the $787 billion economic stimulus bill.
It remains to be seen whether the new jobs tax credit will be approved or not, and what effect if will have on the US employment landscape. In the mean time, the job market remains tough. Currently, unemployment is 9.8% - the highest it’s been since June of 1983. However, on a brighter note, temporary help agencies report that they eliminated only 1,700 jobs in September, a decrease from the previous month. Economists see temporary jobs as a leading indicator, as employers are likely to hire temp workers before permanent ones.