HIRING

Will Tax Incentives Get You To Hire?

Existing proposals of hiring tax credits to create new jobs have mixed political support and experts disagree over their efficacy.
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Despite many economists' belief that a tentative recovery is in progress, unemployment is expected to rise well into next year. But some politicians and economists see a strong partial solution in the form of hiring tax credits.

"It doesn't solve all the problems for all the businesses, there's no denying that," says Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research, who is drafting a proposal for a hiring tax credit he hopes will gain traction in Congress. "For an employer who, without the credit, plans to cut their workforce by 30 percent this is not really relevant."

However, Bartik thinks an incentive that gives a business 15 percent of the cost of taking on a new employee and 10 percent of that cost in the employee's second year, could convince employers who are on the fence to take the plunge and hire.

"It's not the case, contrary to what some people think, that when the economy is like it currently is that there are no businesses that are in a position to expand," says Bartik. His research relies on data collected by the Bureau of Labor Statistics, which says that between March of 2007 and 2008, 61.5 percent of business establishments either expanded or retained the same number of people on their payroll.

Bartik has attempted to extrapolate how these numbers have changed in the interim, but he feels that even if the percentage of businesses in the position to hire or stay the same has dropped by 10 percent, millions of businesses remain that could make good use of the credits.

Critics think the tax credits wouldn't dent the problem. "It's not sustainable, it's a one time kind of thing," says John Ams, executive vice president of the National Society of Accountants. Ams thinks the real keys to creating jobs are restoring consumer confidence to boost demand and making loans more accessible to small businesses.

One of the only things Ams and Bartik agree on is that the success or failure of a hiring tax credit depends entirely on the political and legislative treatment it receives. Ams says a credit "probably will [affect small businesses differently] but I think the devil is in the details."

Last updated: Oct 21, 2009




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