President Obama's proposed $33 billion tax credit for small businesses that create jobs conforms to a recent analysis from Kalamazoo's Upjohn Institute (http://www.upjohninstitue.org/) which suggests that these targeted efforts will have a higher direct impact on employment at a lower cost than traditional fiscal policy.
The plan, which Obama announced Friday, calls for a $5,000 tax credit for every net new worker hired in 2010. The total would be capped at $500,000 per company, to make sure most of the money reaches small business growth engines. "The economy is growing but job growth is lagging," said Obama, who has warmed to new stimulus measures again this year.
Many Michigan analysts agree. The $787 billion stimulus package approved one year ago "is helping but is insufficient," writes Institute Senior Economist Timothy Bartik. His research review suggests that the nation is still on a path to fall short of pre-recession employment rates by 10.7 million jobs this year, 8.5 million in 2011 and 5.1 million in 2012.
The problem with conventional fiscal stimulus, according to Bartik, is that it focuses on creating jobs by increasing demand for goods and services. Thus, it is a by-product of increasing national GDP, through tax cuts or public spending, and creates jobs at a higher cost than more direct routes.
Bartik's January Employment Research report says a stimulus package aimed only at job creation could include three components: 1) tax credits for employers creating jobs, 2) payments to employers for work sharing (reducing working hours rather than laying off employees), and 3) public service job creation.
"This package would aim to create 5 million jobs in 2010 and 4 million jobs in 2011, filling a little less than half the expected jobs deficit in each year," according to Bartik. Estimated cost from the Office of Management and Budget and Congressional Budget Office: $276 billion. However, offsets from reduced spending on social programs and increased tax revenues would drive the cost down to $108 billion -- a net cost of about $12,000 per job created.
The drum beat for a more targeted jobs creation policy in Michigan and elsewhere is likely to increase this year. Although GDP growth well exceeded expectations for the end of 2009, job growth is typically a lagging indicator of economic recovery, and unemployed, restless voters strike fear in the hearts of politicians as they approach mid-term elections.
I hope the tax credit can be carried forward to future tax years (is it?) because a tax credit, unless it's structured like an earned income tax credit that pays cash to the individuals who qualify, doesn't do anything for you if you have no taxable income due to running a business in the red. In any case, consumer (or business customer) confidence is what ultimately gets people and companies spending money or expanding. And that confidence must be grounded in an expectation of a real sustainable turn-around in the local and national economy. Let's hope Michigan's transformation can provide the basis for that confidence!
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