GIVING TAX credits to employers who hire people who need jobs but can't find them is an appealing idea. Make labor cheaper, economic theory says, and employers will, other things being equal, buy more of it. Do it through the tax system and you avoid a messy bureaucracy. Arguments like these led to the enactment in 1978 of the Targeted Jobs Tax Credit that gives employers a tax credit of up to $3,000 a year for hiring each low-income youth or certain other poor job-seekers. Now the Reagan administration proposes to repeal the credit as ineffective. It has good reason to do so.
Administering subsidies through the tax system is not as easy as it sounds. Unless you are prepared to tolerate a good bit of abuse, someone still has to certify who is eligible and make sure that expenses claimed were actually incurred. Current procedures could probably be streamlined somewhat, but bookkeeping is an essential part of accountability. The value of a tax credit is also likely to be discounted by employers who aren't certain if they're going to make a profit anyway. No profit, no tax liability, no value to the credit. In other firms, the people who do the hiring may have scant concern for the company's tax status.
These shortcomings have been blamed by some proponents of the legislation for the fact that relatively few of the estimated 2 million hires made each year from the eligible population have been certified for credit. The right question though is not how you could make the program yield more, but whether this is really an efficient way to help the hard-core unemployed in the first place.
At first glance the program may seem a relative bargain. Since wages are a deductible employer expense anyway, the net taxpayer cost of each credit ranges from $900 to $2,580, depending on the employer's tax bracket. But that's not the cost of creating a new job. By any calculation, most of the money will go to pay for jobs that members of the "target" group would have gotten anyway. Remember, even if as many as 30 percent of a group are unemployed, 70 percent -- and more over time -- are getting jobs, and the tax credit will have to pay for the whole group. This is the easily forgotten truth about tax subsidies of every sort -- investment credit, tuition credits and the rest. Unless almost no one was engaged in the subsidized activity before, most of the money will go to pay for things that were already going to happen -- a windfall to the credit claimers, in this case employers, but of little help to the intended beneficiaries.
In the case of the tax credit program, this likelihood is underscored by the fact that almost two-thirds of certificates were issued for people who had already been hired and were later found to be eligible. There is, moreover, real reason to doubt that marketing people will cut-rate waged is a good way to help them get jobs. Pilot projects testing even 100 percent wage subsidies have found relatively few employers interested. There is even evidence that this kind of earmarking is a turnoff for both employers and job-seekers.For most employers other factors -- worker reliability, skills and attitudes -- seem to be much more important in hiring decisions than even relatively large differences in direct wage costs.
A selective use of some sort of hiring voucher, combined with education, training and job-finding assistance, could encourage some employers to take a chance on a person they would otherwise reject. But the $300 million currently budgeted for the tax credit program could be better spent on directly helping certain poor youths acquire the skills and work experience they need to sell themselves to employers on the employer's regular terms.