Yesterday, I noted that the White House seemed curiously unwilling to talk about the expiration of the payroll-tax holiday, the bipartisan stimulus plan enacted in 2011 which ended up not providing any economic stimulus. At almost the same time, the Obama administration rolled out its new idea for a job-creation stimulus, which borrows from Jimmy Carter’s economic plans. Oddly, they’re willing to talk about this:
President Obama made a fresh call Tuesday for another round of economic stimulus, proposing to spend more than $25 billion to offer tax breaks to companies to hire workers or pay them higher salaries.
The measure is Obama’s first proposal aimed at addressing the still-weak economy since his reelection and an acknowledgment that though it is no longer a political threat, the nation’s unemployment rate of 7.9 percent remains a significant problem.
The tax breaks would target small businesses and refund 10 percent of the cost of new payroll — in the form of new hiring or new wages — up to a total of $500,000 next year.
The Tax Policy Center — which the Washington Post calls “non-partisan,” a description that would amuse the Wall Street Journal and others — says that this policy worked during the Carter administration, the last time it was tried. Don’t you recall that huge hiring tsunami that happened during Carter’s term? Well, the TPC doesn’t either, but says that’s because Carter didn’t advertise it enough:
The last time the country had a similar proposal to the tax subsidy was during the Carter administration, according to the Tax Policy Center. Research by the Labor Department found that few firms knew about the tax policy, but those that did increased employment notably.
“An incremental jobs credit could be a cost-effective way of raising employment in the short run,” the nonpartisan center said in a report this year. The effectiveness of any jobs subsidy depends. . . on how employers perceive its potential benefits when making hiring decisions.”
Really? I’d guess that most companies didn’t do their own taxes around a kitchen table and a freebie calculator in the late 1970s, or even on TurboTax these days. They hire tax attorneys and accountants to get them every possible tax break. The TPC assumes that the chicken of more expansive hiring came from the egg of the tax credit, but it’s at least just as possible that the companies that were hiring anyway aggressively looked for ways to take advantage of tax credits to cover that cost. In other words, knowledge or ignorance of the tax credit was irrelevant to companies that weren’t going to hire anyway.
Why do companies expand their workforce? To meet growing demand that expands to the point where it costs more in opportunity to pass up the demand than it does to add labor to the bottom line in order to meet it. Tax credits only impact on the margins of those decisions. What has a much larger impact are the costs associated with added labor — especially costs associated with benefits and other regulatory efforts. Thanks to ObamaCare, the costs associated with hiring have escalated significantly, and thanks to Obamanomics, demand isn’t growing fast enough to warrant expansion. Furthermore, the tax credit will only extend one year, while the costs of the added labor will go on for many years, which also factors into the decision to expand.
The only companies that will take advantage of this latest short-term gimmick are those who will be expanding anyway. It’s the latest in the Cash for Clunkers mentality of this administration. Instead of understanding how and why businesses actually make these decisions and calculating policy over the long term to boost job creation, we’re getting another round of jollying-along cluelessness.