President Obama has recently revealed details of his “small-business hiring tax cut”, a centerpiece of the administration’s bid to boost employment. White House economists hope will assist one million small businesses at a cost of $33 billion.
Under the latest version of the plan released Friday, employers would receive a $5,000 tax credit for every net new worker hired during 2010; start-ups would receive half that amount. Businesses would be reimbursed by the government for payroll taxes paid when they increase wages above the rate of inflation. The maximum total benefit that can be claimed from a business from both programs combined is $500,000. The program, variations of which the White House has pushed for a year, isn’t limited to small businesses. Administration officials calculate that the maximum benefit is small enough to draw mostly small businesses.
Economists are divided on how many jobs would be created by the proposal. Some fear that companies could fire and then rehire workers to claim the credit, or divide one job into two part-time ones. Building enough safeguards to prevent fraud could render the plan useless.
My questions to you are:
Is this provision a large enough carrot on a stick to get small businesses to participate in additional hiring if these same small businesses weren’t planning on hiring? Is waiting for an IRS deduction (i.e. tax policy) at the end of the year a good policy to induce small business or provide any measure of real assistance? Is this a provision that will help to encourage good jobs with an income source that provides a living income? Is this provision more likely to provide more underemployment?