Obama outlines plan to boost small business hiring

McClatchy NewspapersJanuary 29, 2010 

WASHINGTON — Two days after he announced that job creation is his administration's top priority, President Barack Obama detailed a proposal, which he unveiled Friday in Baltimore, to encourage small businesses to start hiring.

His proposed two-part Small Business Jobs and Wages Tax Cut would offer a $5,000 tax credit for each new employee hired this year and reimburse Social Security taxes for businesses that increase wages or hours for existing workers.

Although all businesses are eligible for the program, a cap at $500,000 per business ensures that smaller firms would get the most bang for the buck. The proposal is slated to cost $33 billion — money siphoned from the bank-bailout program, which used fewer taxpayers' dollars than expected — and to extend to 1 million employers.

Despite Friday's news that the economy grew at a better than expected 5.7 percent rate in the final three months of last year, unemployment remains stuck at 10 percent. Small businesses account for 64 percent of net job growth, according the U.S. Small Business Administration.

Small Business Administrator Karen Mills, who traveled across the country to speak with small business owners in the past several months, said, "many of them see the ability to take that next order, to hire that next person, but don't have the tools they need yet."

"Many are eagerly awaiting the right moment," she said.

The White House doesn't plan to release estimates of how many jobs the proposal will create. According to a press release from the W.E. Upjohn Institute for Employment Research Friday morning, senior economist Timothy Bartik calculates that it could generate at least 1 million jobs, with a cost-per-job of less than $30,000, far cheaper than most stimulus measures.

"I believe that President Obama's proposal is a well-thought-out plan that will significantly spur job creation at an affordable price," Bartik said. "If Congress quickly adopts this proposal, it will not solve the United States' current employment crisis, but it will make a significant dent in our employment problems."

Alan Krueger, the chief economist and assistant secretary for economic policy at the Treasury Department, compared the proposal to "Cash for Clunkers" and the First Time Home Buyers Credit.

"We're in a situation now where hiring remains a key challenge," Kreuger said. "This proposal gives a very strong incentive to do so."

Economist John Bishop, a Cornell University professor who devised a job creation tax credit proposal with Bartik that was published last year by the Economic Policy Institute, said the proposal could defray the cost of a new worker's wages by 15 percent to 25 percent, spurring cautious business owners to add new workers.

"A lot of companies put expansion on the shelf 12 months ago, and from their perspective we're still in a bad situation," Bishop said. "I think that's starting to turn around, but we need to create this psychology of 'we've got to do it now.' This program the president has proposed is 'One year only, everything for sale, 25 percent off.'"

Bishop said the only flaw is the $500,000 cap.

"If we took the cap off or doubled it, it would create 3 million jobs at least," he said.

The job creation proposal is based on a similar tax credit established in 1977 that studies have shown to be successful. That tax credit, which offered $7,000 in inflation-adjusted terms for newly hired workers, helped the employment rate rise 11 percent over the next two years, while unemployment fell 2 percentage points.

Krueger said the latest proposal echoes its precedent, such as by offering half of tax credit to start-up companies, while improving upon other aspects, like applying the credits quarterly instead of yearly.

The measure also includes provisions to prevent abuses, such as when companies fire workers and then rehire them to get the tax benefits.

ON THE WEB

A study by the Upjohn Institute on job creation

A study on job tax credits

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