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 to the U.S. Small Business Administration.
Small Business Administrator Karen Mills, who traveled across the country to speak with small business owners, 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 on Friday, economist Timothy Bartik calculates 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.”
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.
Alan Krueger, the chief economist and assistant secretary for economic policy at the Treasury Department, said the latest proposal echoes its precedent, while improving upon some 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.