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Money for nothin'?
One idea being bounced around Congress is a tax credit to businesses for creating jobs. We need something to get the job market going again. I'm just not sure this particular tax break is the solution.
Here are the arguments for and against. From the New York Times:
"It's beautiful if it can be timed at a dire moment like this, when unemployment is way too high and appears to be going somewhat higher," said Mr. Phelps, an economics professor at Columbia, lamenting that the president dropped it from the $787 billion stimulus plan approved in February. "But it's a pity that this wasn't done a year ago."
The Economix blog suggests a case where the tax credit might work:
... suppose a company estimates that a new worker could bring in about $48,000 in revenues every year. But the cost of hiring that new worker would be about $50,000 a year. From the company's perspective, it wouldn't make sense to take on the hire (here, $48,000 additional revenues - $50,000 additional costs of hire = $2,000 net cost). With a 15 percent tax credit, though, the cost of hiring a new worker might fall to $42,500. That means, all in all, the company would likely come out ahead if it hired the worker (here, $48,000 additional revenues - $42,500 additional costs = $5,500 net gain).
But NPR gives some counterarguments:
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.
Economix points to a situation this very month in North Carolina. Dell decided to close its Winston-Salem plant and cut 905 jobs. Five years ago, North Carolina gave Dell $242 million in tax breaks, which were tied to "employment milestones." Apparently, they didn't count too heavily in the business decision to close and fire everyone.
These kinds of government incentives still smack of top down motivation instead of bottom
up. The Big Picture blog advocates a payroll tax holiday:
This stops the government from taking approximately $20 billion a week from people working for a living (a total of $600 per month for someone making $50,000 per year) rather than using that $20 billion to keep some bank limping along. The Government would still continue to credit the social security and the Medicare accounts, so employees and employers will never have to pay back the monies they received. The Payroll Tax Holiday would restore income to American workers (and businesses) to help make their loan payments, rents, pay bills, and sustain their households.
What do you think? Something like that? Or do you think a tax credit would encourage businesses to hire?
Maybe the fact that a bottom-up tax break hasn't happened yet is a sign that financial institutions are in far, far worse shape than anyone outside the White House inner economic circle could imagine. (After all, given the success of the Cash for Clunkers and housing tax credits, surely that would be a PR godsend for the administration?).
Some days, I just don't want to know how bad it really is.
Well, let’s see, the government could just hand out hundreds of billions if not trillions to businesses the way the Bush regime, Paulson, Bernanke, the Obama regime and Geithner did for the too well connected to fail bankers. That is, no strings attached.
Obama could have simply copied and updated FDR’s programs, as per Charles Williamson’s comment. FDR set these nearly over night. As Ahamed Liaquat explains in The Lords of Finance, FDR pretty much ignored economists. But Obama prefers speech acts to legislative and executive acts. He’s more a Calvin Coolidge than an FDR.
The government could establish Medicare for all. That would eliminate a huge cost of business especially for small businesses and enable Americans to spend their lives being more productive. But, no, that’s socialism.
How about taxing corporations that offshore jobs? The tax could be proportional to the economic loss to America. Contrary to establishment economists offshoring has not created more investment and higher paying jobs in America. That’s because there are too many better opportunities for foreign investment.
But the concern about creating jobs for Americans reveals a failure to grasp what has just taken place, who are now permanently winners and who losers. When taxes on the bottom 98 percent of America skyrocket to pay for the government’s bailout of the upper 2 percent there will be no doubt. The debts created by America’s financial oligarchs have just been (and continue to be) transferred to us. They have not been magically wiped out.
It seems like if the decision to hire is so close that it can turn based on a tax credit, in this climate companies are generally still going to go the safer route and not hire the new employee. Companies are risk averse right now and no amount of tax credit is going to fix that.
Now the idea of a payroll tax is fine by me, bring it on. However Bush tried throwing money at the problem and we see what that got us.
The best way for Obama to create jobs is to assign the Dept. of Labor the task of creating local branch offices of the Department and hire people directly off the street to do street repairs,infrastructure repairs to sewers and bridges and those type of construction projects instead of doing federal contracts where nothing seems to be getting done to alleviate massive unemployment.This is similar to what happened under Roosevelt with the WPA program. This way you really create lots of jobs instead of giving millions of taxpayer dollars to companies who so far as you can see have not put any dents in the unemployment numbers.
Hoover had some success with something like that, and FDR developed if further into the CCC. I just wonder why we haven't seen anything like this already? Why not put people to work for money and health care?
My only concern is how will the program be wound down after this mess is over. Will we have a government employer of the masses for decades to come?
