The Guest Blog

Stimulus II? Jobs Tax Credit=Cash For Clunkers

William Dunkelberg, Economics Professor, Temple University

Administration officials have admitted that the “Stimulus Package” hasn’t been very stimulating.

So now, some in Congress are considering “Stimulus II”, which may take the form of a jobs tax credit similar to that enacted in 1976-77. Some feel this was a successful program, creating new jobs. But it is likely that “government job creation” is an oxymoron. Government has no money to hire someone or subsidize the hiring of a worker.

US Capitol Building with cash

The government must relieve the private sector of the funds needed, either through more taxes or through borrowing.

Such a program does not pass a simple “smell test” of logic.

Even a minimum wage worker costs about $20,000 (all in).

Who would spend $20,000 to get a $3000 credit, for example, if there were no use for the worker (e.g. the worker could not generate more than $17,000 in revenue to cover the cost of hiring).

Firms will not hire people to just stand around, and cannot pay workers more than the revenue they generate for the firm. With weak consumer demand, more workers are apparently not needed and owners are not hiring.

A jobs credit won't bring in more sales.

Such a program, if passed, would be the “” program for the job market, pulling hiring into the tax credit period from future periods. Hiring might even be delayed in anticipation of the program if it is proposed in Congress and debated for a period of time. And, unless prevented, such a subsidy proposal might induce some firms to release workers and re-hire them as “new”.

Such a program will involve red tape and complex formulas to compute credits, and most if not all of the money will be paid for workers that would be hired anyway. All this would not induce many consumers to increase their spending, the top need identified by business owners. Labor is cheap, customers are needed. Maybe giving the money to consumers would be simpler.

When consumer spending picks up, firms will have reason to hire (and banks will have a reason to lend to them when asked).

William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.