At last there may be a job-creation idea everyone in Washington can vote for. Too bad it’s an idea that has been amply proven not to work.
The subject is tax breaks for hiring veterans. President Obama included two such provisions in his American Jobs Act. The Returning Heroes Tax Credit gives employers up to $4,800 for hiring unemployed vets, and the Wounded Warrior Tax Credit would double an existing break for hiring disabled veterans from a maximum of $4,800 to $9,600. The two-year cost of the programs: $120 million.
The president has been touting his plan every chance he gets. He did it again Monday, in a Rose Garden appearance at which he was accompanied by leaders of the nation’s largest veterans’ organizations.
Not wanting to appear anything less than 100 percent pro-veteran, many Republicans appear set to support the proposals, perhaps this week, which could make veterans’ job tax credits the first piece of the Obama package to pass Congress.
Clearly, the credits are good politics. They seem like good policy, too: 12.1 percent of the 2 million men and women in the labor force who served in the military since Sept. 11, 2001, are unemployed. “There’s no good reason to oppose this bill,” the president said Monday. “Not one.”
Actually, I can think of several. First, the Returning Heroes credit would apply to unemployed veterans from all eras, not just those from the post 9-11 period. But why? The average unemployment rate for all veterans is 7.7 percent — much lower than the 9 percent rate for the labor force as a whole.
More to the point, government has a long history of trying to create jobs with tax credits for hiring particular categories of workers. It never works, neither for the targeted groups nor for the broader economy.
Economist Sarah Hamersma of the University of Florida surveyed the research on targeted tax credits for the Urban Institute Brookings Tax Policy Center in 2005. She found “no meaningful job creation as a result of these programs.”
One of the programs was a $2,400 tax credit, available from 1978 through 1994, for employers who hired economically disadvantaged people, including Vietnam vets. But a 1992 Labor Department Inspector General’s audit found that it ”was not an effective or economical means of helping target group members obtain jobs.”
Time and again, the costs of targeted tax credits exceeded benefits for most businesses. Those who do take part use the tax credit mainly to subsidize hires that would have happened anyway.
In a sense, this is a counterintuitive finding. Surely, if employers find it harder, for whatever reason, to employ members of certain social categories, then you could pay them to do it.
But employers — especially small businesses, for whom one bad hire can be the difference between survival and bankruptcy — look at much more than just the foreseeable financial cost of a new hire. They also want to know that a given worker has the experience, skills and aptitude for the job. And they generally don’t want to deal with the IRS any more than absolutely necessary.
Historically, the heaviest users of targeted tax credits were large, low-wage employers such as fast-food chains, who could handle the paperwork and absorb the pain of a few bad hires.
In 2002, the Government Accountability Office reported that two-thirds of a recent year’s $135 million in tax credits went to corporations with more than $1 billion in annual sales.
But those companies were not expanding and creating new jobs because of the credit. They were just distributing the same number of jobs among a different mix of people.
”Firms viewed the subsidy not as an incentive for hiring an otherwise unacceptable worker, but as a reward to reimburse them for the extra costs of hiring a hard-to-employ worker — costs the firm would have otherwise paid,” as a 2001 Labor Department report put it.
Yet targeted tax credits remain one of the hardiest of Washington policy perennials. The Labor Department’s 1992 audit led to their expiration in 1994. But targeted tax credits were reborn in 1996 as the Work Opportunity Tax Credit program, which was supposed to soften the impact of welfare reform by helping former recipients get jobs.
The only explanation is politics. If you’re a politician, and you want to make it sound like you’re helping a particular needy group but not giving them a handout, you promise to pay employers to hire them. That’s basically what Obama is doing now, with the likely backing of Republicans.
As the president says, veterans have earned the nation’s respect and gratitude. There must be a better way to show it than this warmed-over policy gimmick.