Employment Tax Incentives Focused on Job Creation

On Wednesday, February 24, 2010, the Senate approved H.R. 2847, which includes the “Hiring Incentives to Restore Employment Act” (the Senate jobs bill, SA 3310) by a vote of 70-28. The bill would create a “payroll tax holiday” for new hires hired through the end of the year and a tax credit to encourage companies to retain those workers for a year. Missing from the proposed legislation is the logical expansion of the Work Opportunity Tax Credit Program to achieve the twin goals of job creation and reduced business costs.

Fourteen years ago, the federal government enacted legislation creating the Work Opportunity Tax Credit (WOTC) Program whose goal is to promote hiring of particularly difficult to employ individuals. This federal corporate income tax credit encourages employers to hire workers while minimizing the cost involved by reducing the employer’s federal income tax liability. The WOTC Program, along with the Welfare-to-Work Program, which has since been rolled into the WOTC Program, has eligibility and processing requirements which are meant to capture the full benefits of such a program for the economy as a whole: businesses, government, and individuals.

The current job creation legislation encompassed in SA 3310 and being taken up by the House today, will require businesses to obtain verification of unemployment, track hours and wages, and figure out how to file for the incentives. In a business climate that is stretching the capacity of HR Departments already, this kind of administrative burden is unnecessary. By using an existing program, with its supporting infrastructure in place, government avoids the additional costs associated with a new program while providing the oversight needed to avoid abuses. Thus, one does not have to choose between “more government” and creating jobs.

Some critics of job creation tax credits argue that to increase employment significantly, demand for output must increase; thus, an incremental tax cut tied to employment will not by itself generate that increase in demand. However, affecting the bottom line of a business, the expenses associated with any hiring, whether planned or not, assists companies in staying afloat in this market in order to meet demand as the economy revives. Adding new employees in a fluctuating economy is risky; providing incentives to do so that require additional administrative burden as an incentive to do so is ineffective. WOTC removes some of that risk to businesses by reducing the cost that they incur by hiring without any additional administrative programs to do so.

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