RE: Phony Incentives and Real Disincentives

Justin correctly questions the actual effectiveness of the hoop-jumping job creation incentives recently laid out by the Governor. (As commenter Roland writes under Justin's post, apparently it is a way to use stimulus money for short term gain). This morning, I heard Helen Glover reading from this American Thinker piece about the problem with this whole approach of trying to micro-manage small business from the top down.

Suppose you are a business that has held on to valuable employees for the last year at a great financial cost. You are now supposed to compete with a startup that has preferential tax treatment because he is hiring new employees. Or perhaps you must now compete with an existing competitor that was less financially sound and thus had to lay off workers. He may now get a tax break to hire them back. You must then compete with more expensive workers than your competition. Instead of creating an incentive to hire you may have created an incentive to lay off workers.

Because the president decided to float this idea in his supposed "State of the Union" with an audience of 48 million viewers, employers who may be considering hiring back workers may elect to delay this as long as possible in order to get the tax credit mentioned, which may be far from being enacted. This would likely delay any employment rebound.

And why should such a benefit only be allowed for ‘small' business? With such high unemployment don't we want to encourage hiring from large businesses as well? If a small business gets preferential treatment for a new hire is he not discouraged from growing beyond the magical and arbitrary tipping point and losing that tax break? Will the job ‘created' by the small business come at the expense of another job in a larger company, negating any benefit?

The solution is, of course, simplicity. Cut taxes for all businesses, reduce government. I know the Governor also has proposed that, so perhaps this is, indeed, short-term window dressing. As always, back to you General Assembly...