Thoughts on The American Jobs Act

9/15/2011

By Joseph M. Press, CPA, CFE

With our economy growing at a glacial pace and job growth effectively at a standstill, President Obama unveiled his jobs growth plan in a much anticipated speech to a joint session of Congress on September 8, 2011. To make sure I had the outline of the proposed bill right, I visited the White House web site and pulled down the Fact Sheet on The American Jobs Act. While the Fact Sheet has numerous features, I will discuss targeted tax credits, non-discrimination and the spending (stimulus) elements, in general.

Tax Credits

The bill calls for two targeted tax credits

• A $4,000 tax credit to employers for hiring long-term unemployed workers.
• Tax credits from $5,600 to $9,600 to encourage the hiring of unemployed veterans. The higher credit would be available for hiring unemployed veterans with service-connected disabilities.

The goal of these proposed credits is laudable, but the effectiveness of job tax credits to achieve the goals is questionable. Would a temporary tax credit of a few thousand dollars persuade an employer to hire an additional employee with annual cost of salary and benefits running in the tens of thousands? Employers hire because there is work to do (demand for goods and services), not because the employees are cheap. Also, because the details of the tax credit program would be developed in such a way as to prevent gaming the system, many small employers would find the program's administrative burden prohibitive.

A survey of available studies on the effectiveness of prior jobs tax credit programs shows the following common findings:

• Employers claiming the applicable credit would have hired the employee even if the credit was not available.
• Employers did not change their hiring practices to actively recruit members of the target groups. Instead, they determined which hires coincidentally fit the eligibility criteria. Many employers determined eligibility after a job offer was made.

Thus, prior jobs tax credit programs often provided a windfall for employers, without impacting the stated goal.

Prohibiting employers from discriminating against unemployed workers

The President's plan calls for legislation that would make it unlawful to refuse to hire applicants solely because they are unemployed or to include in a job posting a provision that unemployed persons will not be considered.

A permanently unemployed caste would be an unacceptable legacy of the current economic situation. However, this is just the kind of regulatory burden that creates uncertainty for employers. Are we creating another protected class of employees? Will it be unwise or improper for an employer to ask a prospective employee for a resume, or ask about recent job experience?

As an employer, I know it is wrong and immoral to deny a person employment for discriminatory reasons or irrelevant factors. However, chronic and/or long-term unemployment has never been a resume enhancing attribute, and is indeed looked on unfavorably. This element of The American Jobs Act will do nothing to create additional jobs and may well have a negative impact.

Spending Proposals

The President's plan contains numerous spending proposals as a means of creating new jobs. A critique of the individual proposals is beyond the scope of this article, but the prospect of meaningful job creation in the near future might be expressed through an anecdotal observation regarding a "stimulus" program directly effecting community banks.

On September 27, 2010, the Small Business Lending Fund legislation became law. Nine months later, this $30 billion program had provided community banks exactly $0. To date, Treasury has funded $1.8 billion, or 6% of the authorized amount, with an additional $2.5 billion approved. Clearly, one year after becoming law, this program has had no real impact.

The Dow and S&P both fell 5% during the week after Labor Day. While numerous factors are in play, the markets seem to draw little aid or comfort from the terms of The American Jobs Act or its prospect for passing.

For more information, please contact your FBLG advisor or Joseph Press at pressj@fbl-cpa.com or 303-296-6033.