Shhh: New jobs bill not likely to create jobs

posted at 8:18 pm on February 10, 2010 by Slublog

You don’t say.

Even the Obama administration acknowledges the legislation’s centerpiece — a tax cut for businesses that hire unemployed workers — would work only on the margins.

As for the bill’s effectiveness, 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 skeptical 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 skeptical.”

$5,000 may sound like quite a substantial tax credit, but it can cost that or more simply to hire and orient a new employee. In fact, according to some studies, “turnover costs for a manager average 150% of salary, including tangible costs of hiring new workers and relocation, and intangible costs such as the new worker’s inefficiency and lost productivity while the job is vacant.” The median household income in the United States is $50,740. Using that figure, it can cost $76,110 to hire and train a new worker. The $5,000 tax credit would cover about 6% of that cost.

The excerpt above summarizes what employers are really looking for when hiring new workers: increased demand for their products, more work for employees and increased revenue. Creating that environment would require the government to pursue policies that allow people to keep more of their money and minimize economic uncertainty.

Unfortunately, that’s not what President Obama and the Congress are doing. The not-yet-dead health care bill, cap and trade and the proposed bank taxes are all creating uncertainty. In uncertain economic times, people tend to hold on to their money rather than spend it, and money in a savings account doesn’t do much to stimulate economic growth.

If the president and Congress want to stimulate the economy, they’ll drop their statist dreams and focus on what has worked in the past.

Blowback