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.

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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.