With chronic joblessness dominating the economic debate, Rep. Bob Etheridge said this morning he plans to introduce a stimulus bill that would pay businesses to start hiring again.
Etheridge, a Democrat whose district includes portions of Wake, Johnston and Chatham counties, faces a November election in which the economy is almost certain to be the defining issue. He said this morning that a financial incentive would push businesses to accelerate hiring, which in turn would stimulate economic recovery.
"The biggest cost for almost every business out there is labor," Etheridge said. "The missing piece in this economic recovery puzzle is to make labor costs manageable."
Under the bill, a tax credit on the federal payroll tax would save businesses as much as $7,500 per new hires in 2010 and up to $5,000 per employees hired in 2011.
The bill would give businesses a 15 percent tax break for each employee hired this year and a 10 percent tax break for hiring in 2011. Businesses could also apply the tax break to restoring pay cuts made during the recession.
According to analysis provided by Etheridge's office, the tax credit over two years would restore 4.7 million of the 7 million jobs lost during the recession. Creating that many jobs would cost $87 billion in tax credits, but much of the cost would be recouped through economic growth, he said.
"We will save billions of dollars at the state and federal level in unemployment insurance," Etheridge said. "The faster we promote growth, the quicker we will have recovery."
Etheridge is still gathering supporters for his bill before he introduces it in Congress this week. He said one lingering concern among legislators in Washington is that employers would game the system to collect tax credits without increasing payroll.
That's what happened in the 1970s with a similar proposal that prompted some businesses to shift employees from one subsidiary to another to collect the tax benefit without actually hiring anyone.
He said this bill closes that loophole by requiring an increase in payroll to qualify for the tax break.
Another potential concern is that the bill would provide tax credits to businesses that would have hired anyway, so the financial benefit would be unnecessary. But Etheridge said some of that is inevitable, but noted that well-designed incentives are known to stimulate economic activity.
Additionally, the tax break is applicable to the first $50,000 of an employee's salary to avoid subsidizing executive salaries, he said. <
The effective date of the bill would be set after the bill is introduced and debated in Congress.
Etheridge announced his plans at a press conference at the downtown Raleigh headquarters of Empire Properties, and real estate and development company founded by entrepreneur Greg Hatem.
Hatem, whose companies employ about 330 people, attended the announcement and said afterwards this his businesses plan to hire between 60 and 70 people this year. He is starting a food processing plant in Halifax County, planning to open a restaurant in Raleigh and also expecting two downtown redevelopment projects.
"What this does is it frees up capital to hire the next person," Hatem said.