By STEPHEN OHLEMACHER, Associated Press Writer
WASHINGTON (AP) — It sounds great: A big jobs bill that would hand President Barack Obama a badly needed victory and please Republicans with tax cuts at the same time. But there’s a problem: It won’t actually create many jobs.
Even the Obama administration acknowledges the legislation’s centrepiece — a tax cut for businesses that hire unemployed workers — would work only on the margins.
Senate Democrats are working this week to round up Republican support for the bill, which would exempt businesses from paying Social Security payroll taxes on new employees hired this year, as long as the workers had been unemployed at least 60 days. The tax break is a simpler, less expensive alternative to Obama’s proposed tax cut of up to $5,000 for each new worker that employers hire.
The tax credit is part of a bill that offers few other new programs to create jobs. Instead, it would extend existing help, such as unemployment payments for those whose benefits have run out, and a subsidy for health insurance premiums under COBRA, the federal program that allows workers to keep their company’s health insurance plan after they leave their jobs. About $33 billion in popular tax breaks that expired at the end of 2009, including an income tax deduction for sales and property taxes and a business tax credit for research and development, would be extended through 2010.
Senate Majority Leader Harry Reid has said he wants to pass the $80 billion bill quickly, before Congress takes a break for Presidents Day next week. However, with the second major snowstorm in less than a week pounding the Washington area Wednesday, that timing was unlikely.
Passage would give Obama the first tangible accomplishment of his renewed focus on job creation, which is also an important election year issue for Congress, with unemployment just below 10 per cent. Senate Republicans are willing partners because the bill is filled with tax breaks they support.
But tax experts and business leaders said companies are unlikely to hire workers just to receive a tax break. Before businesses start hiring, they need increased demand for their products, more work for their employees and more revenue to pay those workers.
“We’re sceptical that it’s going to be a big job creator,” said Bill Rys, tax counsel for the National Federation of Independent Business. “There’s certainly nothing wrong with giving a tax break to a business that’s hired a new worker, especially in these tough times. But in terms of being an incentive to hire a lot of workers, we’re sceptical.”
Rick Klahsen, a tax expert at the accounting firm RSM McGladrey, said his clients need to see more demand for their products before they can hire more workers.
“If demand were increased, they are saying it will take care of itself because I will then have the motivation to go out and hire new employees,” Klahsen said.
The nonpartisan Congressional Budget Office recently concluded that reducing payroll taxes for companies that add workers or increase hours would be among the most efficient ways for the government to create jobs. However, in showing how difficult it is to create jobs through tax policy, CBO estimates that such a tax break would generate only eight to 18 full-time jobs per $1 million in tax breaks.
The Senate proposal is estimated to cost about $10 billion, which would add 80,000 to 180,000 jobs over the course of a year. The U.S. economy, meanwhile, has lost 8.4 million jobs since the start of the recession.
The Senate plan would save companies 6.2 per cent of the new workers’ salaries that are subject to Social Security taxes. A company could save a maximum of $6,621 if it hired an unemployed worker after the bill was enacted and paid that worker at least $106,800 — the maximum amount of wages subject to Social Security taxes — by the end of the year. The company could get an additional $1,000 on its 2011 tax return if it kept the new worker for at least a full year.
Supporters say the Senate plan is cheaper, simpler and less vulnerable to abuse than Obama’s plan, which would cost $33 billion.
At a hearing last week, sceptical House Democrats peppered Treasury Secretary Timothy Geithner with questions about whether a tax credit for hiring workers — as Obama proposes — would actually increase employment. Geithner defended the idea, but acknowledged that businesses won’t start hiring until demand for their products and services increases.
Geithner argued that the economy, which grew at a 5.7 per cent annual rate in the fourth quarter of last year, is starting to rebound, and demand should soon follow. He said a tax break for businesses that hire workers would be an incentive for companies to add employees faster.
“This is a controversial proposal. And we’re trying to be creative about it and pragmatic about it,” Geithner told the House Ways and Means Committee. “But I think this will provide a little bit more of a boost, a little more spark to make sure as we grow, we’re creating more jobs than we otherwise would.”
Rys, of the National Federation of Independent Business, said the credit could speed hiring once employers need more workers. But, he said, NFIB members aren’t seeing many signs of improvement.
“Right now, business owners just don’t have customers,” Rys said. “Until you have work for the employee to do, there’s really less of a reason to hire a new worker.”
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