Monday, February 08, 2010

Hiring Tax Credit Will Not Create Long-Term Jobs

According to this new report from the Heritage Foundation, the temporary tax credit President Obama proposed will not create sustainable jobs needed for long-term recovery. They commend Congress and Obama for trying to help workers who have lost their job, but suggest extending the 2001 and 2003 tax credits instead.

The credit proposed by President Obama pays $5,000 for each new hire a business makes in 2010. Businesses would also get refunds on their Social Security taxes if they increase wages or expand hours for existing-workers. The credit would be capped at $500,000 per business.

Congress tried a similar credit in the 1970s. It failed to create jobs, however, because much like today, policymakers ignored the jobs the credit would destroy since it had to be funded by government borrowing. Therefore, the current proposal must be evaluated by its net job creation--a standard that requires looking at the jobs created by the credit and the jobs lost because the government has to finance the proposal.

On the positive side, according to the Congressional Budget Office (CBO), the credit would create five to nine years of full time employment for every million dollars of credits businesses take. The White House estimates that the credit will reduce tax revenue by $33 billion. Combining these two estimates shows that before offsetting effects, the credit might create between 165,000 and 297,000 jobs in 2010. This works out to a cost of $111,000 to $200,000 per job created.

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