Doubting the Powers of Tax Credits to Create Jobs
While Sen. Harry Reid (D-Nev.) has stripped out most provisions of the $85 billion jobs bill proposed yesterday by Finance Committee leaders, the majority leader is reportedly interested in keeping the 2010 Social Security tax exemption for businesses that hire unemployed workers this year. That provision also includes an additional $1,000 business tax credit (in 2011) if companies keep those workers employed for a year.
The White House says the credits will entice new hires. Some economists say: not so much.
Roberton Williams, tax policy expert at the Urban Institute, points out the obvious, telling the Christian Science Monitor today that no struggling company is going to bring on a new worker — an obligation of tens of thousands of dollars — just for the 6.2 percent tax exemption on that salary.
Generally, companies only hire more workers if they think demand for their products is going to increase, notes [Williams].
A tax credit now might drive some hiring on the margins, says Williams. It might push companies that were thinking of taking on new worker to move more quickly than they might have otherwise.
“But the real winners will be firms who were going to hire anyway,” he says.