Tax Credit to Help Hiring

A note in the New York Times reports that economists are starting to support the idea of a tax credit for companies that create new jobs in the United States. Employers would receive a credit worth twice the first-year payroll tax for each new hire or if they added significant hours of work.

Some are concerned with the idea that employers might try to exploit the system (companies might close and re-open to claim the tax credit for all the “new” employees they hired).

Another critic is that even in recessionary times, some companies are hiring without tax brakes, so a subsidy could benefit those businesses that already would have added new workers. Additionally, if it takes to long to approve the proposal, it might reduce unintentionally job opportunities.

Some critics argue that businesses hire based on actual demand for their products, and a subsidy for adding an employee will not make up for the collapse in demand. According to Greg Mankiw, the regions and industries that have been deeply contracting do not have an incentive for marginal hires, because their employment levels are below the base level (usually, these proposals measure marginal jobs by comparing employment to some base year). This policy could incline against those regions and industries, which have been hit hardest.