Employer Tax Holiday Won’t Jump Start Hiring

June 25, 2011

The White House seems well aware that the upcoming Presidential election will pivot on the economy — and more specifically, the unemployment rate. Prospects for a spontaneous burst of growth are too dim to see with the naked eye.

But the President and his people are understandably wary of proposing anything that could be labeled stimulus spending.

Facts notwithstanding, the Republicans seem to have convinced a majority of Americans that the economic recovery act failed. Also that Congress must cut federal spending now to begin dealing with the deficit.

But tax cuts are good, right? At least so long as they benefit us.

Republicans continue to insist that cutting businesses taxes will create jobs — though we need big cuts in spending and regulations too.

For his part, the President seems eager to prove that he’s listening to business leaders, who, of course, would like lower taxes.

Not so eager, however, as to support another “tax holiday” that would let multi-national corporations bring foreign earnings home at a drastically lower rate. Or at least, say Treasury officials, not unless the giveaway is part of a broader tax reform package. In short, not right now.

But what about giving businesses a temporary reprieve from payroll taxes? They’d like it. Congressional Republicans should like. They sure used to, though they’re reportedly iffy now.

Best of all, it can be cited to show that the President has done something about the jobs crisis.

I’m no economist. But when I read about the payroll tax holiday, I said to myself, it’s not going to get businesses hiring people they wouldn’t have hired anyway.

Businesses aren’t holding back on new hires because they feel they can’t afford the additional 7.65% they’d have to pay on top of the wages.

They’re not hiring because their current workforce is sufficient — if not more than sufficient — to meet the demand for their products and services.

Corporations are sitting on a pile of dough. If they wanted to hire here in the U.S., they would. Small businesses — those putative engines of job growth — are shrinking their payrolls. And a short-term nick in labor costs won’t stop them — let alone get them hiring again.

“I hire workers to do jobs,” says the president of a North Carolina graphics firm. “If we don’t have the work coming in, nothing will make me hire another worker.”

In any event, businesses are adding jobs, though at a pretty sluggish pace. The unemployment rate isn’t budging because state and local governments are still shedding jobs — another 30,000 in the month of May.

A payroll tax holiday won’t save one of them. Another round of fiscal aid to the states could. But a proposal for that would be DOA in Congress.

The Atlantic‘s Daniel Inviglio has some other ideas. Maybe a couple of these would fly. Maybe they’d step up hiring a bit.

But the Economic Policy Institute tells us that the economy would have to create 11 million jobs for the unemployment rate to settle back to its pre-recession rate.

This figure keeps growing as the labor market fails to make up for the many millions of jobs lost and add enough to keep up with the increasing number of youth who’ve become old enough for full-time work.

Those who don’t get jobs soon are likely to face years of lower earnings and future unemployment. And they generally don’t have much by way of safety net supports to tide them over while they’re looking.

People at the other end of the working-age range may be left on the sidelines, even if jobs proliferate faster than anyone expects.

So we’ve got a complex policy problem that I don’t think anyone in Washington wants to confront. It’s bigger than how to create a whole lot more jobs quickly. Bigger than how to rapidly retrofit workers whose jobs aren’t coming back.

I don’t have the glimmer of an answer. But I’m sure as can be that an employer payroll tax holiday isn’t it.

Also sure as can be that the President’s in trouble if he doesn’t come out with a plan that gives us some hope we can believe in.


President Opts for Business Tax Breaks Over Near-Term Job Creation

September 17, 2010

Far be it from me to say that the President shouldn’t do what he can to protect the endangered Democratic majorities in Congress. But the sop he’s offered to win support from the “business community” and its allies isn’t the sort of thing I’d hoped for from someone who only recently said that jobs aren’t “being created as fast as they need to be.”

I’m talking, of course, about the President’s new business tax cut proposals.

One of them would make the research and development tax credit permanent and the “simplified” option for claiming it more profitable. Washington Post blogger Ezra Klein reports that the latter change would increase the credit from 14% to 17%. Price tag about $100 billion over 10 years.

The other proposal would allow businesses to write off the entire costs of new equipment purchases through 2011. This would extend and expand a small business expensing provision that was originally part of the Bush administration’s Economic Stimulus Act. The write-off would be doubled and available to all businesses, including the largest corporations. Price tag about $30 billion over 10 years.

Now, it could make sense to put a permanent R&D credit in place. Congress has extended the “temporary” credit ever since it was enacted. No reason to believe it wouldn’t do so again. In the long run, the permanent extension would thus cost no more than a series of periodic extensions.

But it won’t do much for the vast majority of small businesses — those putative incubators of most new jobs. When the General Accountability Office last looked at the credit, it found that corporations with annual receipts over $1 billion claimed more than half of the total.

True, small start-up companies may also claim the credit, but only if they’re already turning a profit, paying taxes and able to afford the relatively high costs of documentation. Not the next Google being developed in someone’s garage. Not your typical mom and pop store either.

Nor, I think, will the R&D extension produce game-changing breakthroughs that wouldn’t have been developed any way. After all, companies invest in research and development because they think the results will ultimately generate significant products. They’re not going to give it up just because they can’t offset part of the costs with a credit — let alone because they’re not sure they’ll have the credit for years to come.

Let’s look at the credit from another angle. Perhaps the President’s proposal would bring some R&D jobs back home since only expenses for R&D conducted in the U.S. can be claimed.

Klein’s interviewee — the far-from-disinterested president of the Information Technology and Innovation Foundation — says that U.S. companies have expanded their R&D expenditures, but in other countries, e.g., China and Taiwan. No clear evidence that this choice was affected by any uncertainty about the credit or its limited value — quite the contrary.

So not many new jobs for Americans any time soon. And very few if any created will be opportunities for the workers hit hardest by the recession — those with no more than a high school diploma.

Maybe more jobs some day if some companies develop products that generate significant expansion and don’t outsource production, sales and other work. But that latter is a big if.

What about the equipment purchase write-off? We’re given to understand that corporations are sitting on a vast amount of cash. Will the opportunity to write off expenditures faster get them to spend it now?

As Howard Gleckman at the Tax Policy Center observes, “today’s economic malaise is caused largely by a lack of consumer demand.” Companies that foresee a near-term uptick they can’t manage with their existing equipment will buy more, with or without the extra incentive. Companies that don’t won’t.

But just say for the sake of argument that some companies decide to shift equipment purchases forward. Will that create jobs for American workers? Unless I’m missing something, the equipment doesn’t have to be manufactured in the U.S. Could this be a nice stimulus for, say, China or India?

Former Labor Secretary Robert Reich looks at the longer-term impacts. Big corporations, he says, like the tax break for equipment purchases because they’re investing in automation to permanently reduce the need for workers. Insofar as the more generous provision worked, it would be subsidizing more job cuts — and not, I suspect, in big companies only.

Granted, the business tax breaks are a political strategy aimed at boxing Republicans into a corner and/or co-opting the small business argument against letting the top income tax brackets revert to their pre-Bush levels.

But they’re part of a larger picture. According to the White House blog, the President’s vision for America is “a place where we don’t just think about today; we think about tomorrow…. Where we lead the world in the things we make and sell, not just in the things we consume.”

Seems to me he’s not thinking enough about today — that he’s fixed his eyes on the future because he doesn’t have the gumption to do battle for measures that would tackle the jobs crisis we face right now.

He’d probably lose, but not in the minds and hearts of jobless and other anxious voters. And the odds aren’t much better for his latest “stimulus” initiatives any way.


A Real Jobs Bill At Last!

March 17, 2010

Those of you who follow this blog know that I’ve been disappointed with what the White House and Congress have thus far done to address the jobs crisis. I’ve recently vented on the Poverty in America blog as well. And, of course, I’m hardly a voice crying in the wilderness.

The jobs problem hasn’t been altogether ignored. The Senate managed to pass a watered-down tax credit for new hires and a stop-gap extension of expanded unemployment benefits and COBRA subsidies.

It then approved extensions of both to the end of the year, along with an extension of the higher federal match for state Medicaid programs–these as part of a large package consisting mostly of tax cut extensions. The House leadership is now deciding what to do with this bill.

By now, it’s fairly common knowledge that public benefits like UI indirectly save or create jobs because recipients use them to purchase essential goods and services. Demand drives hiring–not only at the retail level, but up the supply chain and out to firms that provide contract services.

But the unemployment problem is far larger than the investments to date. In February, 14.9 million jobless people were actively looking for work–100,000 more than in January. But the number of underemployed workers, i.e., those who were working part-time though they wanted full-time jobs, increased by nearly half a million. An additional 1.2 million had given up looking.

Adding the number of payroll jobs eliminated since the beginning of the recession to the number that would be needed to keep pace with population growth, the Economic Policy Institute estimates that about 11.1 million new jobs would be needed to bring the unemployment rate down to its pre-recession level.

Meanwhile, as the Center on Budget and Policy Priorities reports, state governments are proceeding to slash spending. Education, health care and a wide range of other public programs and services have been targeted for cuts. More freezes and reductions in state-level workforces are in the offing.

Some of the cuts–K-12 education, for example–are actually cost-shifting to local governments, which have already laid off teachers, firefighters, public safety officers and other critical workers. They have also deferred or canceled capital projects, thus precipitating more private-sector job losses.

The National League of Cities projects job losses at 1.5 million or more by the end of 2011–unless the federal government steps in to stabilize city budgets.

And now, at last, it may. Congressman George Miller (D-CA) has introduced a bill–the Local Jobs for America Act (H.R. 4812)–that addresses job creation directly and aggressively, with a focus on restoring, retaining and perhaps expanding public services.

The bill would channel:

  • $75 billion to local communities–$52.5 billion directly to communities with at least 500,000 residents and the remainder to states to distribute to smaller communities
  • $23 billion to states, most of it for earmarked for distribution to local school districts and public higher education institutions
  • $1.68 billion for law enforcement and firefighter jobs
  • $500,000 to Workforce Investment Act programs for additional on-the-job training slots in private-sector businesses

Most of these provisions were part of the jobs bill the House passed in December, though the proposed WIA funding is somewhat lower. The local community aid would be new.

Funding under the new provisions would be allocated according to a formula that targets funds to communities with above-average poverty and unemployment rates.

Up to half the funds could be used to preserve local government public service positions that would otherwise be eliminated and up to half could go to nonprofits that provide services not customarily provided by local government employees. Any funds left over would go to creating new local government public service jobs.

Funds could be used only for compensation of employees in full-time, full-year positions. And priority for new hires is to be given to laid-off city workers, veterans and workers who are receiving unemployment benefits, have been unemployed so long as to have exhausted their benefits and/or aren’t eligible for benefits because their earnings were below the required minimum.

The price tag on the total package is about $100 billion over the next two years. Miller estimates it would save or create a million jobs. EPI says the actual number could be higher because people with these jobs would be spending money at local businesses.

EPI is very high on the bill. Needless to say, the National League of Cities is too. Also, needless to say, the bill has no Republican cosponsors.

A spokesperson for House Minority Leader John Boehner (R-OH) previews where the Republican delegation will be coming from: “The American people don’t want more wasteful Washington spending that expands government at the expense of small businesses. They want Congress to focus on long-term economic growth by helping small businesses create jobs.”

Last time I checked, Americans were a whole lot more concerned about jobs than the economic engine that would create them. But the Miller bill will face tough sledding anyway.


Bipartisan Isn’t Always Better

February 27, 2010

We’re likely to see a tax credit for new hires as part of whatever first-installment job creation measure Congress finally agrees on. But, as Timothy Bartik, an economist at the W.E. Upjohn Institute, explains “not all job creation taxes are created equal.”

What we want, of course, is to encourage employers to expand their payrolls–bring some of those jobless workers on board, put some workers whose hours were cut back into full-time positions, raise wages for those who’ve been struggling to make ends meet with, at best, what they made before the recession set in.

Now, no employer is going to bring on new workers just because of a tax credit. In fact, the National Federation of Independent Businesses, the main small business association, has said that new-hire credits won’t do much until consumer demand increases.

But say an employer was thinking about new hires. A meaningful tax credit that kicked in soon could persuade that employer to go ahead now.

The problem is that it could be easy to game the system–just fire someone and hire someone else instead. Or convert a full-time job to two part-time jobs and hire a new worker for one of them–or both if the screwed-over worker quits.

Another problem is that turnover in some types of businesses is always high–well over 100% in major fast food restaurants. We don’t want our taxpayer dollars going to employers that are just coping with routine churning.

President Obama proposed a $5,000 tax credit for every net new employee a business hires, capped to prevent very large rewards to large, expanding businesses. Note how that net increase requirement deters both gaming the system and rewards to employers who are merely replacing departed workers. The tax credit would be payable on a quarterly basis. So funds would start flowing to the employer soon after each hire.

The President’s plan would also reimburse small businesses for inflation-adjusted increases in their Social Security payroll taxes. This would provide incentives not only for new hires, but also for increased hours and/or wages.

Senators Charles Schumer (D-NY) and Orrin Hatch (R-UT) came up with an alternative bipartisan measure. It would waive an employer’s 2010 share of Social Security taxes for new hires who’ve been unemployed at least 60 days. They say this approach would encourage employers to hire soon, since the amount they’d save would dwindle as the year goes on. They’d also provide a $1,000 tax credit for each eligible employee still on board in 2011.

Bartik says that limiting the tax credit to employees who’ve been unemployed for a specified time and the employer’s Social Security share to only one year will limit the impact. Ditto for deferring the little hiring bonus to 2011.

He and a colleague estimate that the Schumer-Hatch plan would create no more than 200,000 jobs. At an estimated cost of $13 billion, each of these jobs would cost $65,000–probably more than most of the jobs would pay. Dean Baker, Co-Director of the Center for Economic and Policy Research, calls the plan “money for nothing.” Other economists have chimed in on a similar note.

By contrast, the Congressional Budget Office recently identified a tax cut along the lines of the President’s proposal as the most effective option for increasing employment. The Economic Policy Institute estimates that it would create about 1.1 million jobs, at a cost of about $30,000 each.

Nevertheless, Senate Majority Leader Harry Reid decided to include the Schumer-Hatch version in the pared-down jobs bill he managed to get the votes for. Odds are the House will pass it as-is.

Seems that these days a bipartisan proposal is likely to trump a better one.


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