|
By Ronald Fink
The payroll tax credit that the Obama administration has proposed for small businesses may help the economy without doing all that much for job growth.
Under the scheme, companies would get a $5,000 tax credit for each net hire, that is, for each new job that isn't offset by a new layoff, plus a 6.2 percent credit against the payroll taxes that employers normally contribute toward the employee's Social Security benefits. There would be a $500,000 cap on the amount of the subsidy, so it would be more valuable to small companies than to large ones.
But the credit against payroll taxes would be based on an employer's expansion of real wages, so it may encourage them to increase the number of hours existing employees work rather than hire new workers.
The administration concedes as much. "We have very much been emphasizing that you get a tax cut not only for hiring additional workers but also for raising wages, increasing work hours and creating better-paid jobs," The New York Times quoted Jason Furman, deputy director of the National Economic Council, as saying on Saturday. "We view this as having all the benefits of a normal tax cut, plus the extra benefit of job and wage incentives."
In other words, the proposal is designed as much to increase economic output as it is to boost hiring. The administration reportedly expects it to lead to 600,000 new jobs, but a recent study by the Congressional Budget Office suggests those might not materialize. While the CBO study says the plan could boost GDP by as much as $1.20 per dollar of tax revenue lost -- about as much as spending on infrastructure but significantly less than what aid to unemployed workers would yield -- the study noted that companies might instead reduce their prices by the amount of the credit or simply pocket it as profit.
And even if they do use the credit to expand their payrolls, the CBO said the added incentive to do so would be "small."
Some critics say the plan may actually discourage employers from hiring new workers. Dean Baker, co-director of the Center for Economy Policy Research, noted on his website, Beat the Press, on Saturday that a one percent increase in hours worked would be equivalent to hiring 1.4 million workers.
"It is possible that it will not have much effect because the incentives are not that large," Baker wrote. "But it is still perverse policy to discourage job creation in the middle of a severe recession."
Baker and others also worry that companies will game the credit by, for example, bringing contract workers onto their payrolls.
Other observers contend the proposal has strong measures in place to prevent such abuse. Yet even they agree that it may not be very effective.
Howard Gleckman of the Tax Policy Center notes that the credit will inevitably be taken by some companies that were already planning to expand their payrolls. "The problem with subsidies such as this is that they are exceedingly sloppy. A lot of money goes to those firms that would have hired anyway," Gleckman wrote on the center's site, TaxVox, last Friday.
 |
in In Compliance by 
Subscribe to this comment's feed
