Tried and Failed: The Futility of a Jobs Tax Credit

February 1, 2010
By John

Details have yet to be announced, but the White House is set to propose the resurrection of yet another failed ‘stimulus’ program from the Carter era this week – the Jobs Tax Credit.   Why?  Because the societal engineers running the government think they can direct resources and create ‘desirable’ work through Rube Goldbergian machinations, when in fact all they really can do is put more sand on the gears.

Didn’t This Show Bomb in the 70’s, or Is Am I Channeling ‘Ishtar’?

Searching for Jobs Amidst the Ruins

There’s a lot of history here.  We’ll have to stretch our memories a bit – but it’s worth a moment or two’s reflection.  In early 1977, newly elected President Jimmy Carter faced a tough economy.  With the nation stuck in the middle of a series of boom-bust cycles resulting from the guns and butter policies of the 1960’s, Arthur Burn’s feckless administration at the Fed, and of course the debacle of the Nixon presidency, a new Administration was looking for innovative policies to spur job growth.  Some really smart guys were called to the White House, and they came up with a scheme to offer a payroll tax holiday to companies that hired new workers.

Sound great.  You get a spiff for hiring a new guy.  Uncle Sam foregoes taxes he wouldn’t have received anyway (in theory), and we incent companies to put new bodies on the payroll.

It didn’t work.  According the prestigious but most certainly liberal Brookings Institution’s study of the program, the impact on job growth was ‘slight’ (See http://taxvox.taxpolicycenter.org/sunley.pdf).  It was too complex, too hard to administer, too subjective and basically didn’t address the problem of sales.  Absent growth in sales, why would anyone hire a net new person just for a modest and rules-ladened tax break?  The answer is you wouldn’t.  And they didn’t.  So the Carter crowd allowed the program to expire quietly at the end of 1978, and went on to announce another dozen or so failed economic policies before being finally put to bed in November, 1980.

$100-billion Jobs Package to Attempt Jobs Tax Credit Again

In 2009, another liberal administration faced another big mess.  A busted banking system, collapsing federal revenues and a rapid decay in global demand had created a crisis too good to waste.  Layoffs were occurring at a pace of over 750,000 lost jobs per month, and unemployment had already reached 7%.  They felt they needed to act quickly, and passed a $787-billion ‘stimulus’ package (which they have since said wasn’t about jobs – only stimulus – some historian will have to explain that distinction to me later) to stop the job bleeding at an 8% unemployment rate.  That package included innovative job creation ideas like honey bee farms, tattoo removal services, skateboarding parks, high speed trains from Vegas to Disneyland, and climate study grants to fraudsters like Professor Mann at Penn State.

We all know how well that all worked out.

Fast Food Employees: Near the Breaking Point?

Well, here we are in 2010.  Unemployment is now stuck over 10%, and another 5-10% of us are working overnight janitorial shifts at McDonald’s or have given up working at all in exchange for viewing Magnum, P.I. re-runs.  It’s all good, right?

So our now slightly dented, one-year old liberal administration says we need to get focused on jobs this year.  They tell us it is a matter of national security.  And so it calls for a $100-billion-plus ‘jobs package’ – this time to really, really focus like a laser on jobs. Probably green ones, or noble ones with small companies, or maybe really important ones that add to Andy Stern’s SEIU membership rosters.

I’m sure it’s as urgent as the last one, and doubtless no one will read it, either.  But I digress.

The outlines of the new, improved stimulus program are likely to contain the following New Job Tax Credit elements.  First, like the Carter program, it will take the form of a payroll tax holiday on new hires.  Second, the benefits will be capped at $500,000 per company, and therefore it will primarily impact smaller companies.  Third, it will last a year or so.  And finally – in an effort not to repeat the failures of the Carter-era program – it will have lots and lots rules about what a new hire is and is not.  And that means, it all depends on what the meaning of word is, is.

Sound familiar yet?

Will the New, Improved Jobs Tax Credit Crash and Burn, Too?

Of course it will fail.  It is a modern form of manifest destiny that government job creation programs must fail, because public wealth simply consumes private wealth, and creates little or none of its own in return for the meal.  And besides, if they worked we wouldn’t need any more government jobs programs.

Here’s a laundry list of reasons why this one will fail, too, and fail soon:

  • Small businesses don’t have the legal or HR resources to effectively administer such a program.  It’s another compliance headache, and the rules probably won’t be published until a couple of years after the program ends anyway.
  • Small businesses aren’t going to hire $30,000-plus employees for a one-time tax break of a couple grand.  They need to see actual revenue growth to hire.  In case you hadn’t noticed, domestic sales stink and show little sign of recovery.
  • It will distort hiring and misallocate subsidies.  Companies that are growing and would have hired anyway will get the benefits, and companies in slow growth/stagnant sectors will get nothing.   I’m sure someone will suggest excluding successful companies from the program, but how exactly would that work?
  • Big Companies will largely avoid even thinking about the program, although we can expect their their HR professionals will likely to generate a host of amusing viral emails about what bureaucratic mess it is.
  • The government won’t know how to administer the program, either.  So it will hire a new Office of the Inspector General team to oversee it, and there will be forensic audits going on for 5 years after the program is over.  It will probably cost participating companies more to respond to their inquiries than any benefit they receive, and buyers remorse will be intense.  Well-run companies already know this is coming.  So unless they’ve already made large donations to the DNC, they will likely run away from the program like it was carrying Swine Flu.
  • Within a year or two,  activist judges will starting ruling that participating businesses have violated obscure sections of ADA, OSHA or one of the many other alphabet labor laws with respect to their new hires.  The law will surely empower a legion of lawyers to carefully monitor compliance with the new credit, and provide for recovery of legal fees and damages for those crusading class action lawyers who are protecting us from ourselves.   We’ll see a little piece on CNN on this when the JD-crusaders strike gold by blowing the whistle on independent flower shop owners who mistakenly hire sixteen year olds to work after-hours trimming roses.  But we won’t notice much else after that announcement, except for the  ‘For Lease’ signs where impoverished floral types once toiled.

I’m betting there will be yet another urgent jobs bill passed in August, or as soon as this one is recognized as an abject failure (by May or June?).  Congress will then be forced to act in self-defense as an angry and underemployed electorate gears up to fling them into the dumpster this November.  This summer’s package will likely have the added benefit of setting up lifetime sinecure positions for those soon-to-be ex-Congressmen and ex-Senators.

A final question:  will the Administration count those new posts for ex-legislators as jobs saved or jobs created?

Editors Note:  Thanks to Brookings, who did yeoman’s work debunking this foolishness a long, long time ago.

Tags: , , , , ,

2 Responses to “ Tried and Failed: The Futility of a Jobs Tax Credit ”

  1. JoJoTo4 on February 2, 2010 at 8:33 am

    HMM… You mean the Government is going to grow (with more useless jobs, at taxpayer expense!) sounds about right for our boys and girls in Washington. They must have blinders on, to coin a phrase from horseracing! Except these guys are jackasses racing to see who will be King! They just don’t seem to see us right now, what we are going through, what is happening around this country or the world for that matter. I see that if we continue the way we are, we will separate ourselves from the rest of world. You think they don’t like us now wait until we screw up their economies a little more! Then even if we start to make things in this country who will trust us! Well I guess we should let them build the fast train to Disneyland, put them all on it, they belong there anyway! All of our leaders in one great big fantasy world. Hey! Wait a minute, does Disney own D.C. I’ll have to research this! Well buy for now and keep up the great work!

  2. Grocery Clerk on February 3, 2010 at 2:56 am

    O.K. This is Tuesday, so I’m a little late checking in – mea culpa. You should have seen me last Friday, driving to work yelling at the radio. What was I yelling? “Stop calling a tax credit ‘help from the government’!!” Why was I yelling that? Because tax credits are NOT ‘help’ from the government – they are simply less harm. Do I have to spell it out for them? If the thug who shakes your kid down for half his lunch-money every day with an explicit threat of force(like tax law) suddenly decides to leave each of his victims with an extra quarter, let us be very clear: he is not ‘giving’ them a quarter, he is not ‘helping’ them buy lunch; he is simply taking less – and he probably has his own reasons for it.

    Anyway, small-businessperson after expert and expert after small-businessperson were calling in to say to rest assured that no one would be hired under such a law that wasn’t going to get hired anyway. That’s when I said to the radio “Clearly this thing is just another Diamond Lane – it’s just a perk for the people who were already going in that direction with that many people on board.”

    At the time I thought this was another silly and useless government waste of money. Is that a redundancy? and, if so, is it mine or theirs?

    Now that I have read this post, I see that it has far more potential to cause damage than the usual waste of money. Now the rough truth is that this thing could grow government, give it more entrenched power, reward cronyism and take us one more ’straw’ closer to the tipping point of no return (among other undesireable – are they really unintended? – consequences). Thanks, John, it’s after midnight, and I was really in need of sleep. Now I guess I’l just plug in a zombie movie and light my hair on fire until I calm down. Cheers.
    G.C.

    P.S. to JoJo: Good point that screwing up the world economy won’t win us any popularity contests. Add to the list eliminating ourselves as the place where Europeans and Canadians know they can go to for healthcare.
    G.C.

Leave a Reply

Get Adobe Flash playerPlugin by wpburn.com wordpress themes
ga.js