The Guest Blog

Dunkelberg: Jobs Tax Credit is Just Another ‘Cash for Clunkers’ Program

William Dunkelberg|Economics Professor, Temple University

Seeming to usually prefer government management of the economy to that of the private sector, Professor Alan S. Blinder (WSJ 7/12) is now pushing for a jobs tax credit to induce owners to hire more workers.

"At the margin" this might work a bit, but primarily this is a "cash for clunkers" proposal, handing money to owners who found a good reason to hire anyway.

Let's review an Economics 101 principle: you can't pay workers more than the value they bring to the firm or you go out of business (unless you are GM, another government "managed" firm).

So, his proposed 10% tax break (I assume only for a year) would save $3,000 (after tons of paperwork and a delayed cash benefit) on a $30,000 employee. The worker still must generate $27,000 in net value to make sense and after a year, it's up for grabs.

One in four of the 350,000 National Federation of Independent Business members (most with fewer than 50 employees) reported "poor sales" as their top business problem in June. These are the job providers. This means that it is hard for a new employee to generate enough incremental value to justify hiring them (the same holds for expansion or investment in new equipment).

The idea of linking repatriation of foreign profits to such a tax credit makes little sense since the "Major corporations (are) clamoring for a tax holiday" don't employ many workers in the first place. I doubt this is a "powerful" enough incentive to get General Electric to hire many more workers if they don't need them. And, most of the 6 million employer firms in the US do not have overseas earnings.

Noting that over 500,000 public sector workers have lost jobs in the past two "recovery" years, he asks "does that make sense in a jobless economy"? Yes, if the value of what they were doing is less than what we taxpayers pay them, and I suspect this is too often the case.

This is what happens in the private sector, why should the public sector be exempt?

William Dunkelberg is Chief Economist, National Federation of Independent Business and a Professor of Economics, Temple University.