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Question of the Day: How Do You Define a “New Job” or a “Saved Job?”

2 min readBy: Gerald Prante

So part of Barack Obama’s stimulus plan is this, as explained in today’s New York Times:

To encourage businesses to expand their workforces and operations, Mr. Obama wants a tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for each new job created. During the campaign, he proposed $3,000 for each new job. Advisers said he is now also trying to figure out a way to give incentives to businesses that resist cutting jobs, as so many have been doing.

First, let’s set aside the ridiculous idea that the number of jobs is what matters. (If that’s what matters, then why expand unemployment benefits, which discourage prospective employees from finding work?)

How are you going to define a “new job”? Is it net new jobs, or can I fire my entire staff on Friday and then re-hire them on Monday and thereby create a bunch of new jobs? And if it’s net new jobs and it’s temporary for 2009 only, could I hire my entire extended family on Dec. 31, 2009 to come clean out the office, paying them minimum wage for one day and then get $3,000 in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credits per family member? And if it’s permanent, I assume there would be a floor of zero (i.e. no penalty for layoffs), which could lead to various capital gains-esqe tax maneuvers at the end of each year where every other year on Dec. 31, the entire staff would be fired and then re-hired on Jan. 1.

In a nutshell, this is Obama appealing to the make-work bias that exists among the American public, which Caplan documented in his book The Myth of the Rational Voter. Obama’s economic team is too brilliant to pursue this type of nonsense.

And if he extends this to somehow include “saved jobs,” how do you define that? Every employee in the United States will have been considered on the brink of being laid off, yet saved.

And finally, is the tax credit refundable? There are going to be a lot of businesses with zero profits this year and thereby not able to see a reduction in their tax bills if this credit is nonrefundable. (Note that his proposals to change carryback provisions could somewhat affect this.) And what about nonprofit workers? Why doesn’t the Tax Foundation get a $3,000 subsidy for each new job it creates in 2009?