Blinder Misses a Big Game of His Tax Credit Proposal

Alan Blinder did a pitch for a business tax credit for hiring new workers in the Post today. He briefly mentions some of the routes for gaming the credit, but misses the most obvious one for the credit as he has proposed it -- increasing hours. If firms can get a tax credit for higher payroll regardless of whether it is due to more workers or longer hours, then many firms will get the credit for the latter, rather than hiring workers.

During the downturn, firms both laid off workers and shortened hours for their workforce. As the economy recovers firms will both add workers and increase hours. There is an obvious reason for the government to push firms to increase the number of workers on its payroll, which directly reduces unemployment. There is no reason for it to give incentives to increase hours rather than hire workers, as Blinder's tax credit does.

The tax credit can also be gamed by bringing contract workers, such as custodians or kitchen staff, onto a firm's payroll. This will lead to change of employers, but no increase in employment.

--Dean Baker

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