In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, October 07, 2009

NY Times: Employment Tax Credit Gains Support

by Calculated Risk on 10/07/2009 09:21:00 AM

From Catherine Rampell at the NY Times: Support Builds for Tax Credit to Help Hiring

... a tax credit for companies that create new jobs ... is gaining support among economists and Washington officials ...

Timothy J. Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 for each job created.
Under the proposal from Mr. Bartik and Mr. Bishop, the credit in the first year would equal 15.3 percent of the cost of adding an employee. In the second year, it would fall to about 10.2 percent.
The authors estimate their proposal could create more than two million jobs in the first year.
Of course, even in recessionary times, some companies are hiring without tax breaks. So a subsidy could merely benefit those businesses that already would have added new workers.

An American Economic Review study has suggested that the 1970s policy was responsible for adding about 700,000 of the 2.1 million jobs that were awarded the credit.
Advocates argue that such incentives would be more effective this time around not only because of design, but also because of timing. In 1977, hiring was already on the upswing, whereas economists expect today’s job market to decline a bit more and then stagnate for months.
The timing is probably better than in 1977 when employment was already recovering. If the 1970s estimate is accurate (about 2/3 of the jobs would have been created anyway), this proposal is already much better targeted than the housing tax credit, and better for the economy and the housing market too.

A key problem for housing and the economy is that there are too many housing units compared to the number of households. This proposal will indirectly stimulate more household formation - more jobs will create more households - and more households is the key to the housing market and the economy.