The president has described the policies he plans to offer in his major jobs speech before Congress next week as “bipartisan ideas that ought to be the kind of proposals that everybody can get behind.” Which is an interesting way of putting it, because when it comes to at least one of those ideas — a hiring tax credit for employers — the only bipartisan thing about it is the opposition.
This proposal would give businesses a temporary, refundable tax credit — likely in the range of $3,000 to $5000 — for each new employee they took on. If that sounds familiar, it is because President Obama has already floated the idea — twice — and each time both Republicans and Democrats lined up to reject it.
Obama first pushed for the hiring credit in 2009 during negotiations over the stimulus package, back when Democrats enjoyed complete control of Congress. But the president couldn’t even get members of his own party on board with the idea. Even they could see the proposal for what it really is: pandering fluff that might sound good in a speech but makes little sense economically.
“I think it’s unlikely to be effective,” Sen. Kent Conrad (D., N.D.), chairman of the Senate Budget Committee, said at the time. “If you think about it, businesspeople are not going to hire people to produce products that are not selling. Who is going to hire in the auto industry if you give them a $3,000 credit to make cars that people are not buying?”
Sen. John Kerry (D., Mass.) concurred, saying the employer tax credit would likely have a negligible impact on job creation. As did Sen. Ben Nelson (D., Neb.). “There’s a question of whether that puts the cart before the horse,” he said. “If I don’t have enough customers for my product, hiring more people is not going to help, and tax credits are not going to be to my advantage.”
Even the business community, for whose benefit the tax credit was allegedly designed, largely rejected it. As William Dunkelberg, chief economist for the National Federation of Independent Business, explained then: “[Businesses] have no reason to hire anybody because they don’t have anything to do. That’s why the tax credit is a silly idea.”
In the face of such widespread opposition, the idea was ultimately axed from the final version of the $800 billion stimulus bill. But Obama clearly didn’t get the message, because in 2010, once it became clear that the first stimulus hadn’t quite panned out the way he’d hoped, and Democrats started clamoring for another round, he doubled down on the failed proposal, this time calling for an even bigger tax credit — $5,000 per worker.
In his State of the Union address that year, Obama touted “a new small-business tax credit — one that will go to over 1 million small businesses who hire new workers or raise wages.” But there was nothing “new” about it. And despite offering some obligatory applause during the president’s speech, Democrats were quick to trash the idea all over again, using the same arguments as before. “I don’t know anybody in business who hires an employee because they will get a tax break,” said Rep. Mike Thompson (D., Calif.). “They hire employees because they have work to do.”
“Surely, the Treasury can come up with a better way to promote job growth,” an exasperated Rep. Lloyd Doggett (D., Texas) told Treasury Secretary Tim Geithner during a hearing. Even liberal economists couldn’t bring themselves to back the president on the issue. “It sounds good because it’s for small businesses and job creation,” Dean Baker of the left-leaning Center for Economic and Policy Research told Time magazine. “But basically, you are paying companies to hire workers that would have been hired even if you hadn’t handed out tax breaks.”
Indeed, as many other economists pointed out, taking on a new full-time worker often costs employers far more than the tax credit is worth, in the form of startup costs, benefits, and so forth (all of which the full onset of Obamacare threatens to increase dramatically) — meaning the incentive for business owners to make new hires would remain essentially unchanged. And further, the credit applies only to hiring, not to the long-term costs that each new employee brings. Successful business owners, who unlike politicians are capable of long-term planning, would be unlikely to take advantage of the policy.