Legislators are showing renewed interest in proposals for a government subsidy to encourage new hiring. President Obama last month endorsed the idea of a tax incentive for companies that add jobs, and many will be listening for more details in his State of the Union speech Wednesday night.
Faced with populist anger about economic conditions, Washington has been looking for ways to promote job growth, with things like public works projects and aid for states. Many of these proposals, however, have been stymied by a partisan divide over economic policy and concerns about the deficit.
A tax break that would appeal to both workers and buinesses could potentially bridge that divide, assuming that some problems are worked out.
The biggest challenge is how to create a policy that minimizes businesses’ ability to manipulate the system, but that is still simple enough for employers to actually understand and use. The difficulty of striking that balance may explain why the proposal has resurfaced in so many configurations in recent weeks.
On Tuesday alone, three prominent senators — Charles E. Schumer of New York, Orrin Hatch of Utah, and Al Franken of Minnesota — announced two separate plans for hiring subsidies. Earlier this month, Representative Bob Etheridge, Democrat of North Carolina, submitted a similar proposal. Mr. Obama presented a vague version of the proposal as part of a broad job creation plan last month.
The federal government last tried a job-creation tax credit in the 1970s. That policy was generally considered successful, but economists debate which portion of the jobs would have been created anyway.
A recent Congressional Budget Office report estimated that a payroll tax cut for new hires would most likely have a bigger bang per buck — in terms of jobs created per dollar spent this year — than other major policies on the table. It might also give a bigger kick to overall output than most other stimulus programs in play, with the exception of increased unemployment benefits.
Concerns remain, however, about whether employers might manipulate the system — for example, by firing existing workers only to rehire them at a discount, or replacing one full-time worker with two part-time workers.
For this reason, legislators have placed creative restrictions in their hiring subsidy proposals. For example, the Schumer-Hatch plan (which the senators described in an Op-Ed article in The New York Times but have not yet introduced into the Senate) says that new hires who work fewer than 30 hours a week are not eligible for the tax subsidy.
Additionally, only hires of workers who have not been employed in the last 60 days can qualify for the tax deal, to encourage companies to hire an unemployed worker rather than one from another firm.
“You have to find someone you can prove has been out of work for a set amount of time, who also happens to meet the qualifications of the job you’re trying to fill,” said Bill Rhys, tax counsel with the National Federation of Independent Business. “We certainly want to find ways to get people out of the work force back into jobs, but the more conditions you put on that, the less effective it becomes.”
Debate continues on which conditions are necessary.
“We tried to balance the legitimate criticism that you want to make sure that this goes only to people who are actual new hires with the fact that you want to make it easy to use,” Mr. Schumer said.
The technical minutiae can have big implications for the effectiveness of the policy and its ultimate cost. Taking the time to iron out wrinkles and devise the fairest, smartest policy possible could undermine the program by causing employers to delay their hiring while they wait to see whether a subsidy materializes.
“I hope they enact it quickly, but knowing the way things work in Washington, they probably won’t do it until December,” said Daniel S. Hamermesh, an economics professor at the University of Texas at Austin who helped plan the 1970s new jobs tax credit. “By that time the job market will be picking up anyway and it won’t do as much good.”