Alan S. Binder is confused:
For several years many economists have promoted a tax credit for new jobs. (I advocated the idea on this page in November 2009.) While the details matter, the basic idea is to offer firms that boost their payrolls a tax break. As one concrete example, companies might be offered a tax credit equal to 10% of the increase in their wage bills (over 2011 levels, say). No increase, no reward.
You might think Republicans would embrace an idea like that. After all, it’s a business tax cut and all the new jobs would be in the private sector. But you’d be wrong. Frankly, I’m not sure why. Maybe it’s seen as “left-wing social engineering.”
The problem is, Mr. Blinder, is that a 10% tax credit of increased wage cost is a pittance of the cost of acquiring a new employee. If they don’t work out, you’re stuck paying two years of unemployment. And, more importantly, a 10% tax credit on their wages doesn’t help at all if you didn’t need the employee in the first place because demand/business is down.
To survive the current economy, businesses have to be lean and mean. It’s a matter of survival.
I’ve brought the sage words of Mr. Blinder to this blog before, and it frightens me that he is the former vice chairman of the Federal Reserve.