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Would small-biz tax credit work?

Small business

TEXT OF STORY

KAI RYSSDAL: Ten and a half million new jobs, Josh Bivens just said, and that's only to break even. One of President Obama's plans to fix that does seem to be getting support from both political parties: He wants an employment tax credit for small businesses. A $5,000 credit for every net new employee brought on this year. And he'd help companies cover the cost of Social Security taxes if they give pay increases.

We asked Marketplace's Jeremy Hobson whether it might work.


Jeremy Hobson: Imagine you own a small chain of Mexican restaurants and have a total of 100 employees. Demand's been down since the recession began and you've laid off 20 people. You'd like to hire some back, so you can keep your restaurants open later and get the chips and salsa to your customers faster. Will $5,000 per employee convince you that now's the time to hire?

John Bishop: It might not convince you to hire somebody who's gonna be paid a hundred grand, but it certainly will have a big effect for hiring a low-wage worker.

That's John Bishop, a professor of Human Resource Studies at Cornell. He points to a similar tax credit from the late 70s.

Bishop: Employment had been not been growing in the six months prior to the start of this tax credit, and it stopped growing as soon as the tax credit was over.

He says the tax credit being proposed by the Obama administration could cut the unemployment rate by 2 percentage points. The administration's plan would give a company credits for up to 100 workers, to try to ensure a focus on small businesses.

Still, not all small business owners are sure it'll work. David Clinton, who runs an architecture firm in North Carolina, says 5,000 bucks per employee won't speed up his hiring.

David Clinton: It's too small and we need to see the nation build more buildings in order for us to hire architects to design them.

In other words, it all comes down to consumer demand. And tax credit or no tax credit, some employers still aren't convinced it'll be there.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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