Hiring credit won’t create new jobs

By Thomas Oliver

The Atlanta Journal-Constitution

Even as the unemployment rate dropped, concern has heightened over the 26 million Americans out of work or underemployed.

That’s because the recession may have ended but hiring has yet to begin.

So Washington is doing what it does: proposing a solution.

In this case, another stimulus plan. This one includes some tax cuts for small businesses: a one-year break from capital gains for new purchases of small businesses stock, the immediate expensing of $250,000 for qualified investment and extending the accelerated rate by which expenditures for machinery and equipment can be deducted.

“Eliminating capital gains. That nice but it doesn’t help me,” says Marcus Graham, founder and chief executive of Alpharetta’s GM Voices, a 28-staff company that has been providing prerecorded voices for telecoms and automated call routing for nearly 25 years.

Then there’s the tax credit for hiring that the Wall Street Journal says looks “suspiciously like Jimmy Carter's jobs tax credit that led to few net new jobs and was abandoned after a year.”

There's one major problem with giving business a tax credit for hiring. No business is going to hire anyone solely for a tax credit, though they will take the credit for a hire they were planning to make anyway.

“I’m not going to hire anybody until I have work for them to do,” says Graham.

In other words: hiring is demand driven and the biggest problem facing small business is lack of demand, according to the National Federation of Independent Business Research Foundation.

The lack of demand is tied directly to unemployment and the paying off debt most everyone is doing, from businesses to households.

Neither paying down debt nor being out of work coincide with the consumption of the past. Hence, less demand.

You can see this in the hit retailers have taken the last couple of years. Have you noticed the empty stores while Christmas shopping?

Ernie Williams, senior vice president of Atlanta’s NAI Brannen Goddard, a commercial real estate brokerage, says there is more devastation than meets the eye.

Some stores remain open only because they have received lease relief or other concessions from the property or mall owners, the veteran Atlanta broker says.

One idea that’s missing from the president’s proposal the NFIB would like to see is for the payroll tax (FICA) to be suspended for a period.

It’s a twofer: Since both employer and employee pay the tax, a temporary suspension of the tax would put additional cash in employees pockets and reduce the business costs of retaining or hiring workers.

The NFIB says the amount of money that the employee would get would be small enough to encourage it being spent, which would create some demand.

The payroll tax can be turned off and on quickly, the NFIB says.

Given the ongoing problems with getting the earlier stimulus programs in place, this aspect is no little thing.

Cutting the payroll tax would apply to all employees and employers.

Which you might think is good. But politicians prefer legislating favors for special interest groups.

So think again.

Thomas Oliver writes the Sunday business column. He can be reached at toliver.writeright@gmail.com