{"id":283710,"date":"2010-02-05T12:00:50","date_gmt":"2010-02-05T17:00:50","guid":{"rendered":"tag:business.theatlantic.com,2010:\/\/3.35436"},"modified":"2010-02-05T12:10:19","modified_gmt":"2010-02-05T17:10:19","slug":"what-kind-of-tax-relief-would-create-the-most-jobs","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/283710","title":{"rendered":"What Kind of Tax Relief Would Create the Most Jobs?"},"content":{"rendered":"

As Congress wrangles over a jobs bill in the next week, the central debate is: What kind of tax cut will stimulate the most growth? The White House has gotten behind a “hiring tax credit” that would give an employer $5000 for each worker added this year. In contrast, a bipartisan plan anchored by Sen. Chuck Schumer and Sen. Orrin Hatch would cut 2010 payroll taxes cut for all new hires.<\/p>\n

Let’s compare the pluses and minuses of each plan:<\/p>\n

Hiring Tax Credit<\/b><\/p>\n

What It Is<\/b>: This is how the White House described its job creation plan:<\/p>\n

\u2022 Tax credits for new hires.<\/b> A small business that
\nhires ten new employees in 2010 will receive a $50,000 tax credit to
\nhelp offset the costs of those new hires. However, if the same small
\nbusiness lays off ten employees in 2010 and hires five new employees,
\nit would receive no credit. <\/p>\n

\u2022 Tax credits for pay raises.<\/b> A small business with 50
\nemployees that, through increased hours or higher pay, provides all of
\nits employees a $1,000 real wage increase in 2010 will receive a $3,100
\ntax credit, enough to cover the Social Security payroll taxes on those
\nincreases. \n<\/p><\/blockquote>\n

Why It Might Work<\/b>: All job creation schemes will inevitably
\nreward employers for jobs they would have created anyway. But Tim
\nBartik at the Economic Policy Institute found<\/a> modeled the hiring tax credit and predicted only 1 induced jobs for every 5.6
\nsubsidized jobs. But the White House goes even further<\/a>.
\nSince boosting demand and growth is about hours and wages in addition
\nto raw job number they’ll incent wage increases by refunding payroll
\ntaxes “for every dollar that [employers] increase those wages faster
\nthan inflation.”<\/p>\n

Why It Might Not<\/b>: Three large reasons: it can be gamed, it can
\nbe complicated, and it doesn’t juice demand
\nenough from the start. It can be gamed by swapping full-time employees
\nfor part-timers. The CBO found the the New Jobs Tax Credit from the
\nmid-1970s was too complicated for many firms to actually use, which led
\nto mixed results<\/a>. 
\nFinally, critics ask: what if nobody takes advantage of the
\ncredit because employers are holding off hirings until demand grows?
\nAfter all, $5000 isn’t a lot of money. If you’re an employer facing
\nthinning profits, you’re not going to hire somebody for the promise of
\na couple thousand dollars. You’ll hire somebody when business picks up.<\/p>\n

Payroll Tax Break<\/b><\/p>\n

What It Is<\/b>: This is the one-paragraph summary from Schumer and Hatch’s NYT op-ed:<\/p>\n

Starting immediately after enactment, any private-sector employer that
\nhires a worker who had been unemployed for at least 60 days will not
\nhave to pay its 6.2 percent Social Security payroll tax on that
\nemployee for the duration of 2010. The Social Security trust fund will
\nthen be made whole with spending cuts elsewhere in the budget between
\nnow and 2015. That’s it.\n<\/p><\/blockquote>\n

Why It Might Work<\/b>: Some say the hiring tax credit does too
\nlittle to juice demand from the start. But the payroll tax hits both
\nemployers and employees — meaning a payroll tax cut would put money in
\nthe hands of both employers and employees. This is significant from the
\ndemand side because workers, armed with extra dough, might buy more
\ngoods, increasing the broad demand that many employers want to see
\nbefore they start hiring. Moreover, Schumer and Hatch argue that since
\ntheir tax break ends in 2011, employers are incented to hire
\nimmediately to maximize the tax benefit. They also argue that it’s easy
\nfor employers to understand: they just zero out the tax on their
\npayroll software, and that’s it.<\/p>\n

Why It Might Not<\/b>: Like any incentive program, this plan could
\nconceivably be gamed by employers, or alternatively appear too
\ncomplicated for them to even use it. The other concern is cost. The CBO
\nestimated that the budgetary cost of increasing employment by one
\nfull-time person for one year would probably be between $56,000 and $125,000.<\/a>
\nTheir models indicated that a payroll break for new hires would be one
\nof the most cost-effective strategies for juicing employment, but not
\neverybody agrees. EPI’s Bartik would argue that elimating payroll taxes
\nfor all of 2010 ultimately costs the federal government more per added
\nworker than a one-time hiring tax credit. In other words, the
\ngenerosity of this plan is both its strength and weakness.


\n

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As Congress wrangles over a jobs bill in the next week, the central debate is: What kind of tax cut will stimulate the most growth? The White House has gotten behind a “hiring tax credit” that would give an employer $5000 for each worker added this year. In contrast, a bipartisan plan anchored by Sen. […]<\/p>\n","protected":false},"author":1534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-283710","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/283710","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=283710"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/283710\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=283710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=283710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=283710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}