Economists Push Employer Tax Break For New Hiring

Monthly Change In Payrolls

Change in nonfarm payroll employment, in thousands

Economists disagree about a lot of things, but not about today's job market.

They all say it's terrible.

U.S. employers are creating far too few jobs to absorb the 15 million people who need paychecks.

Now some economists are pushing an idea they say could help. They want Congress to approve a tax credit for employers who create new jobs over the next two years. Supporters say it's cheaper for the government to subsidize private employers who hire more workers than to pass huge spending packages to stimulate the economy.

The Economic Policy Institute, a labor-oriented research organization, released a report last week that predicted companies would create more than 5 million additional jobs over two years — if only government would provide them with $27 billion in tax breaks. The idea is getting traction with a number of Democrats and Republicans.

Liane Hansen spoke with Marilyn Geewax, NPR's senior business editor, about the proposed tax program.

New Idea Has Pros And Cons

According to Geewax, the free market is going to need some help to solve our jobs problem.

Geewax said there's no doubt this recession has cost us a lot of jobs, but the statistics are pretty clear that job growth was lagging long before the recession began. The pressure from global competition has forced companies to keep their employee ranks thin. And of course, new technologies made factories and offices a lot more efficient, according to Geewax.

So even in good times, employers are reluctant to bring on a new hire. And in this tough environment, they are just loath to take on the cost of training workers.

But then, how do we encourage companies to get over their fear of hiring? Geewax said supporters of the tax credit think government could help turn things around by offering to refund 15 percent of employers' new wage costs, and then refund 10 percent in 2011.

But there are potential downsides of a new hire tax break bill, she explained.

Many people think government shouldn't use its power to try to force changes in the economy. They point to the Cash for Clunkers program, says Geewax. For those critics, giving consumers government money to buy cars did cause sales to shoot up in the summer, but as soon as the program ended, sales plunged again.

Some worry that a new-jobs tax credit would end up being just another waste of government money. Employers would get tax money for hires they would have made anyway. Or they might try to game the system by laying off more workers now, and hiring them later just to get the tax break.

Plan Gains Traction In D.C.

However, Geewax thinks congressional support for this kind of bill is rising.

This idea has been floated before, but it didn't make it into the big stimulus package that Congress passed in February, she said. But in recent weeks, people have become so frustrated by the lack of hiring that the plan is getting traction. It appeals to some Republicans who support tax breaks for business, and it appeals to a lot of Democrats who want to see more jobs created. The White House hasn't committed to supporting it, but hasn't ruled it out — so the idea definitely is in play in Washington.

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