So our economy is in the shitter. Its been in the dumps for 4 years now. No one is doing as well as the public thinks except for the banks. The jobless rate is over 10% (reported), actual unemployment is closer to 15% in my opinion. More and more homes are teetering on the edge of foreclosure and new jobs aren’t being created.
I have a solution for the job creation issue. This is going to be the single most overly optimistic and potentially rife with problems solution, but could be the fastest solution as well.
I propose a tax credit. Every business under 10 employees will get an 18 month tax credit up to $50,000 for creating a new job. This tax credit could be spread across two positions and go up to $75,000 in value if two jobs are created. How would it work? You hire someone new, and show a net INCREASE in headcount (so you don’t fire someone first then hire another to get your credit), and you can deduct the value of that employee’s salary up to 50k or 75k for 2 employees total from your taxable income.
Hopefully I don’t need to explain to you the benefits to the government. The cost is actually far less than 50k per company to the federal government, as the tax rate of $50k is far lower than the benefit of increasing jobs and reducing the burden on unemployment and welfare systems. The increased production capacity given to these small businesses could result in long term growth as well for said employers.
Think my idea is dumb? let me know why in the comments and please suggest ways to improve it. I’m not an economist, I just like economics.
Won’t this temporarily decrease productivity? I can see employers free-rolling on employees that aren’t essential and would be out of a job once the tax credit is gone. This may be fine if the economy does pick up by then and more essential jobs are required by the employer.
I am no economist, but also find this topic fascinating. This other point of view is also interesting -> http://jtauber.com/blog/2008/11/12/x_will_cost_y_jobs/
who is to say if these employees will be lazy/unproductive? if i could hire another person for free for 18 months I would in a heartbeat. this new hires job would then be to become productive enough to keep their job in month 19.
Yes, if you can hire somebody that will increase your output/revenue/opportunities/etc by the amount of the tax credit then it would be a good thing. I guess I am pessimistic about how such a tax credit would be abused 🙂
It would be abused. But that wouldn’t be different than any other tax credit we currently have or have had in the past (esp. the earned income tax credit). Definitely simplistic, but I like it. Adding a recapture clause would help deter abuse. It would essentially treat it similar to depreciation recapture—if you take take the entire credit, but fire the employee or net headcount decreases after the 18 months, then a portion of the credit is recaptured. After, say, 4 years, you’d be free from any of it being recaptured.
Sounds great – lots of talk but precious little real policy enacted in recent years to help this country’s entrepreneurs create more jobs. Or, maybe we should wait for BOA to hire more tellers instead.
http://www.irs.gov/businesses/small/article/0,,id=220745,00.html
The HIRE Act ended in 12/2010. It could be renewed. Not sure if the <10 employees part would ever fly. Seems like you're overestimating the power of startups, which is typical in our circles.
Ed, I was actually thinking of the millions of small businesses more so than tech startups. the vast majority of businesses are under 10 employees. Think dry cleaners, service providers, etc. I figured 10 people as 50k credit would be a bigger impact to them, i.e. more likely to do it. Charles Schwab isn’t likely to care about 50k. Their secretaries make triple that.
You’ve got the right idea, “a tax credit”, but your putting it in the wrong hands.
We need to fix the real estate problem first before we can have any lasting jobs program or economic recovery.
Here’s how we do it…
The tax credit should be offered to any american taxpayer that purchases a home. The tax credit should be equal to the tax burden of the taxpayer, but not to exceed the cost of the real estate. In other words, the taxpayer gets a free pass on federal taxes for that year and a thank-you for helping jump start the economy.
The problems we face today were started by the real estate market bubble breakage and will only end when real estate market comes out of it’s slump.
Trillions of dollars of wealth have been stripped from mostly middle class families by way of falling real estate values. These middle class families are basically the engine of our economy and, for the most part, their sense of wealth is directly related to the value of their homes.
Business, small and large, hire and layoff chiefly due to supply and demand.
When the middle class regains their sense of wealth and starts spending again business will begin to hire and the economy will expand again.
We just need to put the grease in the right place.