Jobs legislation won't add many jobs

WASHINGTON -- It's a bipartisan jobs bill that would hand President Barack Obama a badly needed political victory and placate Republicans with tax cuts at the same time. But it has a problem: It won't create many jobs.

Even the Obama administration acknowledges the legislation's centerpiece -- a tax cut for businesses that hire unemployed workers -- would work only on the margins.

As for the bill's effectiveness, tax experts and business leaders said companies are unlikely to hire workers just to receive a tax break. Before businesses start hiring, they need increased demand for their products, more work for their employees and more revenue to pay those workers.

"We're skeptical that it's going to be a big job creator," said Bill Rys, tax counsel for the National Federation of Independent Business. "There's certainly nothing wrong with giving a tax break to a business that's hired a new worker, especially in these tough times. But in terms of being an incentive to hire a lot of workers, we're skeptical."

Rick Klahsen, a tax expert at the accounting firm RSM McGladrey, said his clients need to see business pick up before they can hire more workers.

"If demand were increased, they are saying it will take care of itself because I will then have the motivation to go out and hire new employees," Klahsen said.

The bipartisan Senate plan would exempt businesses from paying a 6.2 percent Social Security tax on the wages of new employees, as long as the workers have been unemployed at least 60 days. The tax break would run through the end of the year.

A company could save a maximum of $6,621 if it hired an unemployed worker after the bill is enacted and paid that worker at least $106,800 -- the maximum amount of wages subject to Social Security taxes -- by the end of the year. The company could get an additional $1,000 on its 2011 tax return if it kept the new worker for at least a full year.

The nonpartisan Congressional Budget Office recently concluded that reducing Social Security taxes for companies that add workers would be among the most efficient ways for the government to create jobs. However, in showing how difficult it is to create jobs through tax policy, CBO estimates that such a tax break would generate only eight to 18 full-time jobs per $1 million in tax breaks.

The Senate proposal, which is more narrow than the one analyzed by CBO, is estimated to cost about $10 billion. That would add 80,000 to 180,000 jobs over the course of a year. The U.S. economy, meanwhile, has lost 8.4 million jobs since the start of the recession.

Nonetheless, supporters say it is cheaper, simpler and less vulnerable to abuse than Obama's plan, which would give a $5,000 tax credit for each new worker that employers hire and cost $33 billion.

Either way, Obama and lawmakers in both parties still could claim tangible accomplishments in addressing high joblessness and the inability of Republicans and Democrats to work together to solve problems, both top issues among voters early in 2010 midterm election season.

Democratic leaders had originally hoped to pass the bill this week, before record snowfalls effectively shut down Congress and much of the rest of the federal government in the nation's capital. Final action now may not come until March.

In addition to a tax break for hiring workers, the Senate package would extend unemployment payments for people without jobs for more than six months as well as subsidies to help the jobless continue paying premiums for health insurance they had been getting through their former employers.

It also would extend through 2010 about $33 billion in popular tax breaks that expired at the end of 2009, including an income tax deduction for sales and property taxes and a business tax credit for research and development.

Those tax cuts make Republicans willing participants in the bill, despite skepticism in both parties that it will produce an abundance of jobs.

At a hearing last week, House Democrats peppered Treasury Secretary Timothy Geithner with questions about whether a tax break for hiring workers will increase employment. Geithner defended the idea but acknowledged that businesses won't start hiring until demand for their products and services increases.

"I think this will provide a little bit more of a boost, a little more spark to make sure as we grow, we're creating more jobs than we otherwise would," he told the House Ways and Means Committee.

Rys, of the National Federation of Independent Business, said the credit could speed hiring once employers need more workers. But, he said, NFIB members aren't seeing many signs of improvement.

"Right now, business owners just don't have customers," Rys said. "Until you have work for the employee to do, there's really less of a reason to hire a new worker."