Wednesday, October 7, 2009

New Hire Tax Credits Pick Up Support

Columbia University Nobel Prize winning economist Edmund S. Philips is throwing his considerable influence behind proposals that Congress enact some form of the corporate tax credit for hiring new workers which was stripped out of the stimulus bill at the last minute to bring its price tag within the desired limits. A new propsal circulating on Capitol Hill would provide a two year tax credit for new hires, equal to 15.3% of the new worker's salary in the first year, and 10.2% the second year, to be credited against the payroll tax obligations of the employer, up to an earnings cap of $106,800.00 per hire.

"It's beautiful if it can be timed at a dire moment like this," Phelps says, "when unemployment is way too high and appears to be going somewhat higher." Actually introducing legislation to enact such a tax credit, however, cound have the uninteided consequence of making the economy worse, warns University of California economist Lee Ohanian. "Particularly for big employers, if they think a job creation tax credit is on the offing, it could certainly be an incentive to delay hiring," while the legislation is debated in Congressional committes and on the lfoor of both houses. Failure to aciheve prompt passage of such a bill, Ohanian says, would be counterproductive. "It could have the perverse effect of actually prolonging the recession."
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