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Obama Administration Prefers One Stimulus Program – Handing Over Money to Businesses If They Hire

Yesterday, David Axelrod seemed to suggest that the White House would shut down all their stimulus efforts once the unemployment extension bill passed. But the Wall Street Journal noticed that they’re still trying to extend one other program: the hiring tax credit for businesses.

The Obama administration, stymied by a deficit-wary Congress reluctant to replenish stimulus spending, hopes to combat unemployment by using existing programs that have not been fully implemented.

Key among them is an expiring tax credit that rewards companies hiring unemployed workers. The Joint Committee on Taxation estimated the stimulus program would cost $13 billion. The Treasury Department estimates the initiative so far has cost less–about $8.5 billion–because it has not been fully take advantage of, though that number could grow if more companies use the program before the end of year.

OK, let’s unpack this. The tax credit has been ineffective – businesses aren’t taking advantage of it and using it to the expected degree. The response, then, is to extend it, and continue an inefficient, below-average stimulus program that is not resulting in much job creation.

There was a lot of concern when the hiring tax credit passed that it would not induce much hiring, only give money to businesses that would hire anyway. And the actual benefit given on the credit – exempting business’ 6.2% share of Social Security payroll taxes for the rest of this year for each worker hired, and an additional $1,000 tax credit for each worker retained for a calendar year, didn’t seem big enough to tip businesses into hiring. And I think the data actually confirms that. Nonetheless, it’s being seen as a potential stimulus. Not because it’s effective, but because it passed once before, I’d assume. And by the way, it would be costless, and therefore not a stimulus at all:

The Treasury estimates that so far 4.5 million workers are eligible for the payroll tax exemption—a potential tax savings to employers of $8.5 billion—but Treasury officials worry businesses are unaware of the credit and might not take advantage before it expires in December. The administration will likely push for an extension.

Because the tax-credit program originally was budgeted to cost $13 billion, the administration would not necessarily add to the budget deficit if it succeeds in getting wider participation in the effort.

Perhaps employers don’t know about the program – that would be an Administration failure. But my sense is that it doesn’t outweigh whatever other factors go into hiring decisions, like whether the businesses have any customers at all. Why you would extend it after seeing those results is baffling.

UPDATE: In the interest of fairness, the White House, through Jared Bernstein today, is pressing for an extension of the TANF Subsidized Jobs program, which is a noble goal.

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David Dayen

David Dayen

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