Tags: Tax | Breaks | Hiring | Obama

Tax Breaks for Hiring Promoted by Obama Have Uneven Track Record

Tuesday, 09 Aug 2011 01:52 AM

 

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President Barack Obama’s renewed push to lower the unemployment rate focuses on tax breaks, which have had a mixed record of adding jobs to the U.S. economy.

The president went to the Washington Navy Yard on Aug. 5 to propose tax credits ranging from $2,400 to $9,600 for companies that hire military veterans. Other tax incentives aimed at encouraging businesses to hire, such as breaks in 2010 for companies that filled positions with long-term unemployed workers, didn’t create many jobs, said Mark Zandi, the chief economist at Moody’s Analytics Inc.

Home Depot Inc. and United Parcel Service Inc., which have almost 1.1 million employees combined according to Bloomberg Government data, took advantage of tax benefits included in the 2010 HIRE Act. The problem, according to Zandi, is that many of the companies would likely have hired the employees without the tax breaks and using them just made the decision less expensive.

“The HIRE Act was an effort to lower the cost of labor temporarily to incentivize businesses to hire more,” he said. “That’s not particularly effective and that may be the lesson from the HIRE Act.”

The law exempted businesses that hired employees who had been out of work for at least two months from the 6.2 percent payroll tax on wages paid for most of 2010.

No ‘Magic Bullet’

Evan Liddiard, a former senior tax policy adviser to Republican Senator Orrin Hatch of Utah, who sponsored the hiring measure last year, said the legislation wasn’t necessarily intended to persuade a company not interested in hiring to change its plans.

“I do not believe that the senators who crafted the HIRE bill ever viewed it as a magic bullet to solve the employment problem,” said Liddiard, who is a partner at Urban Swirski & Associates LLC, a Washington lobbying firm. “Rather, it was hoped that it would speed up hiring decisions.”

The Internal Revenue Service and U.S. Treasury Department don’t have data yet on how many companies claimed tax benefits related to the law.

The Treasury Department has said 10.6 million workers were hired between February and October 2010 that could make their employers eligible to claim tax benefits under the law. It’s not clear whether the HIRE Act caused or accelerated these hiring decisions.

Heading into next year’s election, Obama and congressional lawmakers are trying to prove to voters that they have successful job-creation strategies. The U.S. Labor Department said Aug. 5 that payrolls rose by 117,000 workers in July. The gain was greater than anticipated and the unemployment rate fell to 9.1 percent, which remains high by historic standards.

‘No Contradiction’

The tax code plays a prominent role for both political parties in the prescription for job creation. Obama and congressional Democrats are pressing for an extension of the payroll tax cut that is in effect for employees this year. They will face some opposition in Congress because the one-year break cost $111.7 billion in forgone revenue to the Treasury, according to the congressional Joint Committee on Taxation.

“There’s no contradiction between us taking some steps to put people to work right now and getting our long-term fiscal house in order,” Obama said Aug. 5 in his Navy Yard speech as he renewed his call for the payroll tax-cut extension. “The more we grow, the easier it will be to reduce our deficits.”

Republicans, including House Majority Leader Eric Cantor of Virginia, want to allow companies to return as much as $1 trillion in offshore profits to the U.S. at a low tax rate. Cisco Systems Inc., Pfizer Inc. and Apple Inc. have lobbied Congress for a so-called repatriation holiday, maintaining the repatriated funds could be used to hire more workers.

2004 Precedent

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, and other Democrats have said funds repatriated during a 2004 holiday didn’t create jobs and were used for other purposes, such as stock buybacks and dividend payments to shareholders.

The most important consideration in crafting tax incentives designed to stimulate hiring is whether the policy will fuel demand, Zandi said.

“Near term, the focus needs to be on demand so extending the payroll tax holiday is necessary,” he said.

Lawmakers have used the tax code for targeted purposes for decades. The main purpose of the tax code, however, should be to generate revenue, said Chuck Marr, the director of federal tax policy at the Center on Budget and Policy Priorities, a non- partisan research organization in Washington.

“The tax code’s primary job is to raise money so in the long term, the tax code isn’t doing its job,” he said. “But right now the U.S. faces a complex situation with unusual amounts of long-term debt and a very weak economy.”

© Copyright 2014 Bloomberg News. All rights reserved.

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