Tax credit to create jobs gains bipartisan traction

By Catherine Rampell

New York Times

The idea of a tax credit for companies that create new jobs, something the federal government has not tried since the 1970s, is gaining support among economists and Washington officials grappling with the highest unemployment in a generation.

The proposal has some bipartisan appeal among politicians eager both to help their unemployed constituents and to encourage small-business development. “There is a lot of traction for this kind of idea,” said Rep. Eric Cantor of Virginia, the Republican whip.

In addition to the economists working on the proposal, some heavyweights support the concept, including the Nobel laureate Edmund S. Phelps, Dani Rodrik at Harvard University and former Labor Secretary Robert Reich.

One version of the approach, to be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, would give employers a two-year tax credit if they increase the size of their work force, or add significant hours of work (say, making a part-time worker full-time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, or several thousand dollars depending on the new worker’s salary.

“It’s beautiful if it can be timed at a dire moment like this when unemployment is way too high and appears to be going somewhat higher,” said Phelps, a Columbia University professor.

One of a number of ideas being discussed, the policy is intended to encourage companies to start hiring again by making it cheaper to add new workers. It has raised concerns, though, that employers might try to game the system.

Timothy Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 per job created.

But some dismiss the idea as corporate welfare.