Obama: Here's $5,000. Go hire someone.

[Robb]

Source: CNN

When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

(snip)

Obama will travel Friday to Baltimore, where the local unemployment rate is nearly 11%, to unveil his tax-cut road map. The $5,000 per-worker tax credit he's calling for would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

Read more: http://money.cnn.com/2010/01/28/smallbusiness/obama_jobs_plan/

---

Important note: while the per employee tax credits are, as CNN reports, "available to businesses of any size," the refund tops out at $500K per business, e.g. 100 employees. Small businesses will benefit disproportionally from this, which I believe is good. Of course there's the benefit to those being hired as well. To say nothing of incentivizing raising wages and increasing hours! :)

[rgbecker]

1. Sounds like the perfect fix for the greedy Republicans....Tax Cut, Tax Cut, Tax Cut!

5 will get you 10 the republicans don't bite.

[KingFlorez]

2. Sounds good to me

There need to be more jobs opening up out there and this looks like it will help create some.

[Cha]

3. Thanks, Robb.. It's sounds like Small Businesses Will

Benefit from this!

[Newsjock]

4. H-1Bs don't qualify, I hope

n/t

[northernlights]

5. I missed the SOTU (working)

will those tax breaks be limited to hiring US Citizens? Or will imported workers count? Outsourced to 3rd world employees?

[Robb]

6. More details: here's the fact sheet

from the White house, I don't see that addressed but I'm a little sleepy:

(edited to add: it does say "putting more Americans back to work," I suppose.)

EMBARGOED UNTIL 8:00PM EST THURSDAY, JANUARY 28, 2010
Small Business Jobs and Wages Tax Cut

In one year, our economy has come back from the brink of depression, and is now growing
again. But as the President made clear in his State of the Union address, he will not be satisfied
until economic growth is translating into robust job growth. Although businesses are beginning
to invest and expand again, many remain reluctant to hire. In this environment, we have a unique
opportunity to accelerate the pace of job growth by providing businesses – particularly
America’s small businesses – with a tax cut for putting more Americans back to work. That is
why the President is outlining the details of his proposed “Small Business Jobs and Wages Tax
Cut.” The proposal is simple and straightforward:

• Businesses will receive a $5,000 tax credit for every net new employee that they employ in
2010. The total amount of credit will be capped at $500,000 per firm, to ensure that the majority
of the benefit goes to small businesses.

• Small businesses will be reimbursed for the Social Security payroll taxes they pay on
real increases in their payrolls. Specifically, firms that increase wages, expand hours or
hire new workers would get a credit against the added payroll taxes that result. This bonus
would be based on Social Security payrolls, so it would not apply to wage increases above
the current taxable maximum of $106,800.

• Firms will be able to claim the credit on a quarterly basis, which gets money out to
businesses quickly and provides an early incentive to hire and increase payrolls. Non-
profits will be eligible for the credit and start-ups will be eligible for half the credit.

• The proposal is estimated to cost $33 billion.

Examples of how the Small Business Jobs and Wages Tax Cut would work:

• Tax credits for new hires. A small business that hires ten new employees in 2010 will receive a
$50,000 tax credit to help offset the costs of those new hires. However, if the same small business
lays off ten employees in 2010 and hires five new employees, it would receive no credit.

• Tax credits for pay raises. A small business with 50 employees that, through increased hours
or higher pay, provides all of its employees a $1,000 real wage increase in 2010 will receive
a $3,100 tax credit, enough to cover the Social Security payroll taxes on those increases.

• No benefits for gaming. A small business that fires 10 workers and hires 10 workers to
replace them would see no net increase in employment and thus would not receive a credit. A
small business that lays off 10 employees making $50,000 each and hires 20 employees
making $25,000 each will receive no credit. Likewise, a small investment firm that raises
salaries for its top employees from $300,000 to $350,000 will not receive a credit.

The Congressional Budget Office recently identified this type of job creation tax cut as the most
effective way to help accelerate job growth of all the policy options it evaluated. The general
approach has received support from a wide range of economic analysts and experts, including
Morgan Stanley, the Economic Policy Institute, the Small Business Majority, Paul Krugman,
Mark Zandi, and Alan Blinder.
EMBARGOED UNTIL 8:00PM EST THURSDAY, JANUARY 28, 2010
Details of the President’s Proposed Small Business Jobs and Wages Tax Credit

President Obama’s Small Business Jobs and Wages Tax Credit is designed to provide a cost-
effective, immediate jump-start to job creation and wage growth. The credit will provide
American businesses with a powerful short term incentive to not only create good jobs but to
increase wages and hours for Americans with jobs who face ongoing economic uncertainty in the
current environment.

• A $5,000 tax credit for each net new job created in 2010. Employers would receive a tax
credit of up to $5,000 against their payroll taxes for every net new employee they hire in
2010. The credit is designed to help jumpstart job growth by giving employers an incentive
to add jobs or accelerate the hiring they would have done later in the future. Start-ups would
be eligible for half the credit, which provides an incentive for entrepreneurship while
avoiding gaming. The credit would be administered off an employer’s unemployment
insurance wage base (equal to 72% of the unemployment insurance wage base increase, or
$5,000 credit for each additional worker who earns at least $7,000).

• An additional tax credit to reimburse payroll taxes on increases in inflation-adjusted payrolls.
Businesses will receive a bonus 6.2 percent tax credit on aggregate wages in excess of
inflation – reimbursing the employer for the Social Security payroll taxes they pay on those
payroll increases. This provides firms with an incentive to increase wages or work hours for
existing employees as well as hire new employees at a higher wage. This wage bonus would
be calculated off the Social Security payroll tax base, so firms would not get credit for
increasing wages for employees making more than the current taxable maximum of
$106,800.

• A cap at $500,000 per business to incentivize small business hiring. All firms with net
employment increases will be eligible for these credits. But to ensure that small businesses
receive the bulk of the incentive to hire, the maximum credit will be limited to $500,000 per
business.

• Anti-abuse provisions to ensure that employers do not game the system. Businesses that
reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the
wage bonus. The credit would also include anti-abuse provisions designed to deny or limit
the credit to employers that seek to game the system by, for example, replacing full-time
employees with part-time employees. This will include limiting the maximum jobs credit
amount to 25% of the increase in a firm’s Social Security payroll wage base. In addition,
rules would prevent businesses from renaming themselves or merging in order to claim the
credit.

• Quarterly payment option to accelerate payments to firms. Employers would have the option
of receiving the tax credit on a quarterly estimated basis. This helps get money in the hands
of employers earlier in the year, could help increase awareness of the credit and provides an
early incentive to hire.

[rapturedbyrobots]

8. as much as i hate the general trend of obama's neoliberal economic policy

this might actually work. good thing they're keeping companies from gaming the system.

only thing is it sounds like it could lead to a lot of low-pay, temp work. assuming that a 'net' employee only means that someone (not the same actual person) fills that spot for most of the year. this means jobs with no benefits. but better than no job at all.

good luck to everyone currently unemployeed. i hope you find something. i hope this helps.

[northernlights]

27. as I feared, it doesn't address imported workers

I know imported people who have been working in high-tech for years -- right through this recession -- in jobs where we have thousands, if not hundreds of thousands of fully qualified people out of work. For example -- a technical writer from England at EMC. Through the real estate boom she lived cheap in a high-end rent-controlled brownstone in Backbay Boston. While tech writers were being dumped right an left over the last decade, she's been entrenched in her job at EMC. Her (now) husband is Australian and works in high tech sales and marketing. There are zillions of sales and marketing people out of work, and there he sits in the rent-controlled townhouse taking a sales/marketing job away from an actual citizen. And here in Maine, there are tourist companies with many foreign workers imported, while local citizens are unemployed and on food stamps and welfare.

[Robb]

32. I think the phrase "American workers" addresses that. nt

[DaveinMD]

7. Great new for me

my company will definitely be hiring this year.

[bertman]

9. As a small business owner I'm wondering why I would hire an employee just to get

a tax credit. Seriously.

Businesses hire employees because they NEED them in order to do business--not just to get a tax credit. Or, at least, that's the way I and most of the other business owners I know work. Of course, I'm not a titan of finance or the CEO of a Wall Street firm so I may be too dumb to get it.

BUT, it really does sound good.

Regarding the wage raises, I'm wondering how an employer can give a raise to ANY employee for ANY reason just for a tax credit. Raises are usually given because a worker has improved in proficiency or productivity, or has gained knowledge, or offers some other tangible/intangible asset to the company. Giving raises means that the cost of doing business increases and might make a company less competitive.

Somebody please explain how this is going to work, so my company can benefit from it.

Thanks.

[provis99]

10. I imagine most small business owners are thinking the same way.

If you're a small business owner and you need a new worker, you hire one. If you don't need one, you don't hire one. Whether there's a tax credit or not I can't see as making any difference in your decision. We need to get back to Keynesian economics. The reason a business owner hires more workers is more demand for their product; simple. The government should be increasing aggregate demand, not fiddling around with Reaganesque tax policies.

[bertman]

11. That's kind of the way I see it also, provis99. But I'm hoping some MBA or tax accountant

is going to provide us with the explanation for how this is going to work.

[nevergiveup]

14. That is not necessarily true.

I have a small business with only 3 employees. I had to let one go last fall and it has put a terrible strain on everyone but can't swing financially for adding another person now. Business has ticked back a little but it is still pretty terrible. I have several small suppliers in the same predicament. Many small businesses are stretched really thin trying to survive. Any incentive from the government would be very welcome here.

[Lorien]

33. But if you have a business that's already doing well the program can be a real cash cow. nt

[jgraz]

13. The tax credit is not for you.

It's another giveaway to giant corporations for doing what they were going to do anyway.

[Psephos]

15. It's capped at $500,000

which means nothing to giant corporations.

Personally, I would prefer that the government focused on raising demand instead of tax incentives, but that said, this plan is clearly oriented toward small businesses and not big companies.

[jgraz]

16. Then it makes no sense whatsoever.

Of course, this is just the proposal. I guarantee you, that $500,000 cap will disappear before Obama signs the bill.

[dysfunctional press]

36. no, it won't.

it's supposed to be aimed at small businesses.

[jgraz]

38. We'll see

I hope you end up being right, but I doubt it.

[Alias Dictus Tyrant]

17. +1

This makes no sense. A $5k tax credit for a new hire is awfully close to a rounding error.

If you want to increase the number of well-paid jobs created by small-ish companies, policies that increase capital investment would be the way to do it (hint, hint).

[Robb]

22. $5,000 is a "rounding error"??

And we wonder why people call us elitist. :eyes:

[Alias Dictus Tyrant]

35. A $5k tax credit is mostly worthless. Here's why:

1.) It is a tiny fraction of the total cost of hiring someone. I spend that much just on overhead for a hire. Welcome to the real world of business. Bribing people with a very modest tax credit to take on an enormous cost is just going to pay people that were willing to make that investment in a hire anyway. That's why it is below the noise floor. Hell, $5000 is less than the variance in compensation negotiations.

2.) It is a *tax credit*, which is utterly useless for many classes of small business that don't pay Federal taxes. Most venture capital backed small businesses (i.e. the kinds that produce good jobs) are in this class. A hiring incentive aimed primarily at burger flippers is hardly what I would call a good direction for the country.


I would *love* to be able to hire more people (and we pay well), but doing so is expensive to the point that a $5k tax credit is laughably small (it would be a minor windfall, not a decision changer) and we would not even be eligible for the tax credit in any case. The only way I'd be able to hire someone is through more capital investment.

[Robb]

40. Sorry if "burger flipping" is beneath you

...And this tax credit doesn't help fund your venture capitalist buddies. :eyes:

In my neighborhood, JOBS ARE NEEDED. $5K is a lot of money.

"Real world of business" my ass.

[icee]

51. Excellent. You are exactly right. The tax credit was merely

stated as evidence of doing something. The amount of the credit is too low to mean anything. What needs to be done is a massive infrastructure improvement project in various locales. Course, then, you don't have Madge in Kansas City saying, "My God, President Obama is going to give businesses a $5,000 credit. Glory be." Instead you have her saying, "OMG, President Obama is going to spend $40 million dollars to redo the bridge over the Culligan River. Where is he getting the money for that?"

[high density]

26. Hrm.

That pays for my benefit package for a year.

[jgraz]

39. Compare that to the cost of hiring someone you don't really need

NO ONE is going to be persuaded to hire someone for a $5k tax credit.

[high density]

41. No business is going to hire somebody they don't need

But this could be a tipping point for somebody who is already looking to possibly add a person.

It's like the new homeowners tax credit. That tax credit doesn't pay for a house, but if you're already thinking about buying it's just another item to help along the possibility of a sale.

[jgraz]

42. Then it's a recipe for a bubble

I don't believe this will cause many businesses to hire at all, but if it just causes them to speed up the process, that will just reduce demand later on.

[high density]

43. A hiring bubble?

If only we could generate such a thing with tax cuts, the $1 trillion that Bush spent on them would have fixed everything for the past decade.

More people with jobs will put more money back into the economy, which will increase demand for products and services. Companies will eventually need to hire even more workers to satisfy this demand.

[jgraz]

46. I hope you're right.

My prediction is that this will not be effective. I will be ecstatic if I'm wrong here.

[Robb]

45. OK, jgraz, I disagree with you on this one

...but I have to acknowledge that your sig line is the funniest fucking thing I've read in a very, very long time. I'm still laughing. I love it. :D

[jgraz]

47. The best part is how few people actually notice

I think you're the third person to mention it, and I've had it for well over a year.

[bitchkitty]

21. Many small businesses would LIKE to hire workers, but can't afford to.

This would make that easier on them. I hope it works, and I'm glad it has restrictions to deter those who would try to game the system.

[Tailormyst]

24. I don't understand it either

It makes no logical business sense. It might be neat to get 5k because I hired someone, but I am certainly not going to hire someone based on getting back 5k.

[Robb]

25. self delete

wrong place

[SteelPenguin]

28. Well I don't know about you

I'm a small business owner too. This does nothing for me. The main impediment to me being able to hire people isn't a tax credit I'll see at the end of the year, but the monthly cost for providing decent health care that is competitive with larger companies.

One of the best things we could do to spur job creation in small business in this country is initiate Single Payer healthcare, imho, or at least put in health care reform that it costs the same for me to provide benefits to my employees as a large employer.

[anigbrowl]

44. When you need to hire but can't quite afford to do so

Let's say you have a job that needs doing any market rate for a skilled person is $25,000. You have only $20k spare cashflow, but hiring a less-skilled person could actually cost your business money. A $5,000 break on your taxes, though, would give you time to build up your business with a competent new member of staff.

[TygrBright]

12. The state of Minnesota had a program similar to this during the 1980s....

...you know, after Reagan tanked the economy. It was VERY effective. It was open only to Minnesota employers who were creating jobs in Minnesota, and they had to commit to keeping the new employees for minimum of (if I recall correctly) two years.

It created a LOT of jobs, and they didn't disappear when the tax credits ended.

This could work.

interestedly,
Bright

[JDPriestly]

18. Does the business have to keep the person employed for the full year?

I would not like to see a business hire someone, take the credit and then fire the person.

[Spryboy]

19. Similarly...

If a company hires someone, and then fires a different person (no net gain), I hope this doesn't apply.

I would also like to see it apply only to hierees that are documented American Citizens. Explicitly.

I would also like to see it apply to businesses whose base or head quarters are in the physical United States (leave out those who tax-shelter with fake HQ's in the Caymans, etc).

[Liberty Belle]

20. Does it include nonprofits?

I run a nonprofit media outlet and would love to hire someone -- if we can qualify.

[Robb]

23. I would think so.

Nonprofits pay taxes. :shrug:

[timo]

29. its smoke and mirrors

I need customers, not new employees.
My workers are cut back now to 24 maaaybe 32 hours a week.
this is no kind of help at all.

[Robb]

31. You understand unemployed people are unlikely to be customers, yes?

Again, just because it does not work for your situation doesn't mean it won't work for others'. You need customers. Your customers need jobs. :shrug:

[timo]

48. you do realize

that NO ONE is going to hire someone for a 5k tax break, this is like trying to jumpstart a car with a half dead 9volt battery, WEAK!!!!!

[Robb]

49. Business owners in this very thread disagree.

But I'm sure you must know better. :D

[timo]

50. gee

some in the same thread also disagree with you and agree with me that this isnt going to help shit!!

[Lorien]

30. Tax cuts are never as effective as actual jobs programs

If profits are down I'm not going to spend 45k to get 5k. If I'm already profitable such a tax cut would benefit me further.If you offer me a decent contract for a large government job that requires new workers, well, that's a whole different story. FDR was successful because he CREATED jobs, not because he jumped on the GOP tax cut bandwagon.

[Robb]

34. Apples and oranges

This creates jobs in sectors that are already improving, IMO, not declining sectors. More kung fu, less whole cloth.

FDR had a little less to work with, and needed to create jobs out of whole cloth. I know someone will now tell me this situation is a million times worse than what FDR faced....

[WhiteTara]

37. I would definitely help our coimpany

bring on one new person and up the hours of the current one.