WASHINGTON, DC- Two new studies on the implementation of a job creation tax credit support the approach of U.S. Senator Bob Casey’s Small Business Job Creation Tax Credit. Specifically, the reports by the Congressional Budget Office (CBO) and the Economic Policy Institute (EPI) separately highlight two facets of the Casey proposal: a credit large enough to affect the decision of an employer to hire and focusing the credit on businesses that have a net increase in payroll.
According to a February 4th EPI policy memo:
“The Casey proposal is close in design to the Obama administration’s JWTC [Small Business Jobs and Wage Tax Cut] and should prove an effective job-creator if passed. Both proposals offer large credits that cap the benefits that very large employers can claim, and proposals are tilted (using different mechanisms) towards employing lower and middle-wage workers. The most important issues regarding both proposals are that the credit they provide is big enough to change employer behavior and that they spend enough money overall to actually create a significant number of jobs in the coming year.”
For the entire EPI memo click HERE.
According to a report released by the Congressional Budget Office (CBO) last month: “Providing tax credits for increases in payrolls would increase both output and employment.”
In a letter to Senator Casey providing additional detail on its analysis, CBO director Douglas Elmendorf discussed different mechanisms of an effective tax credit. On the superiority of a job creation tax cut linked to increases in payroll rather a payroll cut for all firms, the letter stated:
“Compared with reducing employers’ payroll taxes for all firms, limiting the reduction to companies that increased their payroll would produce a substantially larger rise in full-time-equivalent employment per dollar of budgetary cost because it would link tax benefits to payroll growth.”
The full CBO letter can be found HERE.
The earlier CBO report on increasing economic growth and employment can be found HERE.
Under Senator Casey’s Small Business Job Creation Job Creation Tax Credit (S.2973), employers would only receive the credit if they increase payroll. This would focus the credit on growth and address potential fraud where employees are let go and then rehired in order to obtain the tax credit.
Small businesses are the backbone of the American economy and are the real jobs engines of our economy. In recognition of this and to have the maximum impact on job creation, small businesses would receive a larger credit than large employers. The proposal would provide a tax credit of 20% for small employers and 15% for large employers – those with more than 100 full-time employees.
The credit would only apply to an employee’s wages up to the Social Security wage base of $106,800.
The employer would be eligible to receive the tax credit for one year.
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