In the midst of President Obama’s push to hike taxes on the most successful job-creating Americans, the President proposed a new “stimulus” of $25 billion to offer tax breaks to businesses for hiring new employees or paying workers higher salaries.
Sound like déjà vu? That’s because Congress and the Obama Administration passed similar hiring tax credits back in 2010—to no avail.
Obama’s latest version of the botched policy is intended to target small businesses by offering to refund 10 percent of new payroll costs incurred by companies next year. If enacted, this recycled hiring tax credit will most certainly fail, just as its 2010 predecessor did.
Just like the original, this remake of an old policy would fail to create long-lasting jobs because it doesn’t affect the core question businesses ask themselves before hiring a new employee: Does the new worker increase the business’s profitability over the long term? Businesses don’t usually hire workers for just one year, so the credit won’t change their decision-making process one bit.
One other obvious flaw is that Congress would inevitably be giving tax breaks to businesses that had already planned to add new payroll without the new tax credit. At best, a hiring credit might increase temporary workers. But even those jobs would disappear when the credit expires, leaving no lasting effect on the job market.
Instead of reviving policies that are already proven to fail, the President and Congress should focus on removing uncertainty generated by temporary measures, in order to drive the strong job creation that’s necessary for a robust economy.
President Obama wants to raise taxes by $1.6 trillion—a huge portion of which would fall on small businesses. Heritage’s Curtis Dubay sums up the damaging effects of imposing high tax rates on businesses and job creators:
Higher tax rates will take money away from these job creators that they otherwise could have invested to create new jobs. Higher rates will decrease their incentives for taking on new risk, which will also deter job creation.
It’s ironic that President Obama would hit job creators with higher taxes and then give them a tax credit to hire. Higher tax rates would destroy a much greater number of jobs than his misguided stimulus proposal could possibly create.
Kaitlyn Evans is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm.