Job Creation Tax Credit For Hiring The Unemployed May Be Killed
One of the few job creation bills that squirmed through the halls of Congress earlier this year is back on the chopping block.
The HIRE Act of 2010 (Hiring Incentives to Restore Employment), signed into law last March, is designed to boost the hiring of long-term unemployed workers who in June made up a record 46 percent of unemployed people in the US.
The program currently exempts employers from taxes on new workers who've been unemployed for at least 60 days. Normally, an employer must pay 6.2 percent payroll taxes on wages paid to a new hire. But since mid-March, new hires who were unemployed long-term come tax-free, and if the employee stays for at least a year, companies get an additional $1,000 tax credit.
As of now, December 31st 2010 is the last date new hires can trigger the tax credit for firms. But the White House is pushing to extend the current deadline.
To gain congressional approval for an extension the White House will first have to convince lawmakers that the tax exemptions are adequate motivation for employers to add jobs. Critics say the tax credit has had little effect, and is being claimed mostly by companies already in expansion mode that would have hired regardless of the tax credit. Further, government officials say anecdotal evidence suggests companies are unaware the incentive even exists.
Since President Obama's mention of the program in his State of the Union address "there's been little further marketing, which Treasury is now trying to correct," writes the Wall Street Journal.
A report released by the Treasury Department on Monday examines whether the bill is working to spur job creation. Officials highlight the 4.5 million long-term unemployed workers hired from February to May 2010. Their employers are now eligible for $5.1 billion in 2010 tax relief, a subsidy that will cost the government $13 billion by 2019, according to estimates by the Joint Committee on Taxation.
"The immediate and targeted nature of this tax cut makes it easy to understand why this program is showing early signs of success," said Senator Chuck Schumer (D-New York), who co-wrote the bill with Senator Orrin Hatch (R-Utah). Schumer told The New York Daily News, "we are planning to work to extend it for another six months."
Under the act, an unemployed worker hired at $50,000 a year who is retained by an employer for a year can save the employer $4,100 in annual tax relief. Even though "it's a relatively small amount of money at stake, when you consider the overall costs of taking on another employee...it may be just the incentive that employers on the fence about expanding may need," says New York Times Economix blog's Catherine Rampell.
The Congressional Budget Office predicts the bill could create around 300,000 additional jobs by the end of the year, the Atlantic notes, adding "it's a tough count, since many employers who claim the credit would have hired anyway."