Cornell University

ILR Alumni and Friends News

621 Ives Hall, 607-255-6623

News

January 27 2010

Jobs, Jobs, Jobs

ILR Professor John Bishop helps craft congressional wage tax credit proposal

Generating jobs – a key theme of tonight's State of the Union address – has U.S. Congress members looking to John H. Bishop for advice in shaping legislation that could put millions to work and rev the nation's economy.

A bill introduced by U.S. Rep. Bob Etheridge of North Carolina and U.S. Rep. Steve Kagen of Wisconsin earlier this month adopted large portions of a tax credit proposal put forward in October 2009 by Bishop and Timothy J. Bartik of the W.E. Upjohn Institute for Employment Research.

"Every employer – an entrepreneur with two or three employees or a large corporation -- who withholds Social Security contributions for employees" would be eligible for a tax credit under the legislation introduced to the U.S House and Ways Committee, Bishop said yesterday in an interview.

"The incentive puts labor 'on sale' for the next two years. It's a stimulus driven by entrepreneurship," he said. Businesses would receive tax credits when they bump up their payrolls, under the proposal.

When the United States used a job creation tax credit in 1977-78, private employment rose 11 percent -- the biggest two-year increase the country has experienced in the past 50 years, Bishop said.
More information about the Bishop-Bartik proposal and the 1977-78 tax credit is available at http://www.ilr.cornell.edu/news/jobCreationTaxCredit.html.

"The tax credit will work again because it improves cash flow, helps companies increase exports and improve the services their company provides to customers," said Bishop, an economist and member of ILR's Human Resource Studies faculty.

"Expansions halted by shriveled bank credit since 2008 will have reason to go forward. And, Americans will have more job opportunities," he said.

This is how the proposed legislation would work: any organization that expands its 2010 payroll by more than three percent above its 2009 level would receive a 15 percent tax credit on the increase. In 2011, employers would receive a 10 percent credit for payroll increases of at least five percent over the 2009 level.

For example, a company with a 2009 payroll of $100,000 and a 2010 payroll of $133,000 would get a tax credit for 15 percent of the increase over 103 percent of the 2009 payroll. The credit would be $4,500.

Known as the HIRING Act, the legislation's formal name is "Hiring Incentives to Reinvest and Incentivize New Growth Act of 2010."

Bishop said the proposal would be cost effective because the less than 15 percent of the cost of hiring an additional extra worker would be paid by the subsidy.

In contrast, creating a job from scratch would cost the government about $135,000 per job, he said.

The tax credit legislation proposed by Etheridge and Kagen includes provisions to prevent "gaming" of the credit.

A company's total wages, for instance, must increase in order for a firm to qualify for the tax credit. That clause would prevent employers from getting tax credit by simply replacing a full time worker with part-time workers or laying off current workers to hire new workers.