There’s a problem with the bipartisan jobs bill emerging in the Senate: It won’t create many jobs.
The bill includes tax cuts to please Republicans and its passage would hand President Barack Obama a badly needed political victory. But even the Obama administration acknowledges the legislation’s centerpiece — a tax cut for businesses that hire unemployed workers — would work only on the margins.
Tax experts and business leaders said companies are unlikely to hire workers just to receive a tax break. Before businesses start hiring, they need increased demand for their products, more work for their employees and more revenue to pay those workers.
“We’re skeptical that it’s going to be a big job creator,” said Bill Rys, tax counsel for the National Federation of Independent Business. “There’s certainly nothing wrong with giving a tax break to a business that’s hired a new worker, especially in these tough times. But in terms of being an incentive to hire a lot of workers, we’re skeptical.”
The bipartisan Senate plan would exempt businesses from paying a 6.2 percent Social Security tax on the wages of new employees, as long as the workers have been unemployed at least 60 days. The tax break would run through the end of the year.
Companies could get an additional $1,000 on their 2011 tax returns if they keep the new workers for at least a full year.
Supporters say the Senate plan is a cheaper, simpler alternative to a proposal by Obama that would give a $5,000 tax credit for each new worker employers hire this year. Obama’s plan would cost $33 billion.
The nonpartisan Congressional Budget Office recently concluded that reducing Social Security taxes for companies that add workers would be among the most efficient ways for the government to create jobs. However, in showing how difficult it is to create jobs through tax policy, CBO estimates that such a tax break would generate only eight to 18 full-time jobs per $1 million in tax breaks.
The Senate proposal, which is more narrow than the one analyzed by CBO, is estimated to cost about $10 billion. That would add 80,000 to 180,000 jobs over the course of a year. The U.S. economy, meanwhile, has lost 8.4 million jobs since the start of the recession.
Democratic leaders had originally hoped to pass the bill this week, before record snowfalls effectively shut down Congress and much of the rest of the federal government in the nation’s capital. Final action now may not come until March.
In addition to a tax break for hiring workers, the Senate package would extend unemployment payments for people without jobs for more than six months as well as subsidies to help the jobless continue paying premiums for health insurance they had been getting through their former employers.
It also would extend through 2010 about $33 billion in popular tax breaks that expired at the end of 2009, including an income tax deduction for sales and property taxes and a business tax credit for research and development.
Those tax cuts make Republicans willing participants in the bill despite skepticism in both parties that it would produce an abundance of jobs.
At a hearing last week, House Democrats peppered Treasury Secretary Timothy Geithner with questions about whether a tax break for hiring workers would increase employment. Geithner defended the idea but acknowledged that businesses won’t start hiring until demand for their products and services increases.
“I think this will provide a little bit more of a boost, a little more spark to make sure as we grow, we’re creating more jobs than we otherwise would,” he told the House Ways and Means Committee.
Rick Klahsen, a tax expert at the accounting firm RSM McGladrey, said his clients need to see business pick up before they can hire more workers.
“If demand were increased, they are saying it will take care of itself because I will then have the motivation to go out and hire new employees,” Klahsen said.