Benefit From the Reintroduced Proposal To Create Jobs

Will Your Company Benefit From Obama's Reintroduced Proposal To Create Jobs?

Once again President Obama’s administration is trying to support the creation of more jobs. The new initiative is more generous than the earlier versions which Congress could not seem to prioritize or support, and it’s designed to be even more favorable to small businesses.

Under the new proposal a firm that hires a new employee in 2010 would get up to a $5,000 credit against its income tax. Additionally, a company that offers raises above the inflation rate in 2010 would receive an income tax credit equal to the additional Social Security taxes it would pay on the increase.

The tax credit would be available to employers on a quarterly basis and would also be retroactive to the start of the year. And while any business could claim the credits, they would be capped at $500,000 for each business. The administration estimates that one million businesses, the majority being small businesses, would consider utilizing the credit to support new hiring and increased capacity within their workforces. The administration estimates that if firms used the maximum credit to hire rather than for salary increases, it would create six million new jobs.

The nonpartisan Congressional Budget Office believes that among various measures to increase job growth – including income tax cuts, cuts to payroll taxes not tied to hiring and bigger deductions for capital investment – a generic tax credit for hiring would create far more jobs per dollar spent than most other options.

The Obama administration, for its part, acknowledges that this new proposal is not perfect. The administration says, “Even if only a small portion of the total jobs that are being rewarded by this tax credit were created because of this tax credit, you have still created an enormous number of jobs. It’s not just designed to help small business create jobs; it’s also designed to reward higher wages, good jobs, and just generally cut taxes for small businesses at a hard time for this sector.”

To prevent possible abuse of the new incentives, the proposal says that companies that fire and then rehire workers would not be eligible. Nor could well-paid executives give themselves raises, because the credit is tied to Social Security taxes, which are capped at incomes of $106,800. The proposal also does not allow replacing a full-time worker with two part-time ones making the same total salary and prevents companies from renaming themselves or merging to claim the credit.

Obama administration officials and members of Congress first raised the possibility of a hiring tax credit, commonly described as worth $3,000 a job, a year ago as they drafted the Recovery Act. It was rejected then, but, the economy is now at a different stage of the recessionary cycle. The administration says, “A year ago the economy was in free fall. We were losing 700,000 jobs a month. It’s hard to imagine how a tax incentive to add jobs can help a business that’s planning to lay off large numbers of jobs. Now we’re in a different position. We’re seeing G.D.P. growing.”

The President believes, “Now is the perfect time for this kind of incentive because the economy is growing, but businesses are still hesitant to start hiring again,”

Meanwhile, some Obama opponents are already making statements on why this proposal should not be approved without making any specific recommendations to create jobs.

The New York Times reported that “Representative Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, which oversees tax matters, said, ‘A sprinkling here and there of a few poll-tested proposals won’t provide enough help or get small businesses hiring again.’ He said that business owners were alarmed about how Mr. Obama’s proposals on health care and energy would affect their bottom line.”

The Times also reported that “Charles E. Grassley of Iowa, who is the top Republican on the Senate Finance Committee, said in a statement that “tax incentives that encourage job creation can help if they’re done right.” He added, however, that “Congress will be swimming upstream with tax relief if it doesn’t also do something about the bad environment for small-business growth.”

Fair enough, but where are Mr. Camp’s or Mr. Grassley’s alternative suggestions?

I found one which I think needs to be taken into consideration, but it is not from the Administration or Congress, but from an owner of four small retail businesses in Chicago. His name is Jay Goltz. He owns Jayson Home and Garden, Artist Frame Service, Chicago Art Source, and Bella Moulding.

Mr. Goltz says … “I don’t know if this is basic economics, basic capitalism or basic common sense, but businesses hire people to do work. Businesses don’t hire people if they don’t need them, whether there’s a tax break or not. If companies don’t have work for new hires to do, they aren’t going to hire them even if they’re on sale for 6.2 percent off. Or even 20 percent off.”

He continues, “Suppose, you might ask, a company is on the fence about hiring someone? Would the incentive make a difference in that case? That’s a fair question. Here’s how I look at it: I might consider adding a new salesperson because my company appears to be getting busier … But if in two months I realize that business is not in fact coming back as quickly as I had thought, and I need to lay off this person, I will likely end up paying out $5,000, $10,000, or even $20,000 in unemployment taxes for the person I hired and then laid off. … There is an alternative. When the government gives investment tax credits on business purchases, some companies go ahead and buy that machine they’ve been thinking about buying. That creates business for the machine companies, for the freight companies, and for the electricians who hook up the machines. It creates work. And that work might give one of those businesses enough incentive to hire someone.”

I think Mr. Goltz’s support of capital improvement incentives is important and will also contribute to job growth, but I also believe we need a bill similar to the New Jobs Tax Credit of 1977-78. We need to create immediate incentives to directly impact potential job growth.

We can all find aspects of today’s political climate and the government’s ability to function on which we can agree and disagree. But one statement from last week’s State of the Union address seems irrefutable. We did not elect Congressmen or Presidents to go to Washington to protect their own jobs, but to protect the jobs of the electorate.

Okay ladies and gentlemen inside the beltway, get to work and get as many Americans back to work as possible.

And don’t say the President is not asking for alternative ideas or is not up for negotiation.
“I’m open to any good ideas from Democrats or Republicans,” he said to a group of Republicans in Baltimore. “The key thing is it’s time to put America back to work.”

Otherwise, I believe those who compromise our country’s ability to function through their own dysfunctionality will have to look for a new job; preferably outside of the beltway.

Post written by: ERE.net Community