Monday, September 21, 2009

The Case for an Employer Tax Break

Hey this makes sense to me, but the current environment it seems policy is not going to head into this direction:
The tools are at hand. Modest changes to corporate tax policy can spur job creation. Create the jobs and we'll create consumers to spur growth.

The good news is that the corporate sector as a whole has come through this recession considerably stronger than in the past. Today, leaders of the best companies have proven once again their ability to adapt proactively to a changing environment.

Shareholders have been the beneficiaries. Most companies have handily beaten earnings expectations through much of this year. In the second quarter alone, three-fourths of the S&P 500 beat consensus estimates, and a similar number have rewarded their investors with stock price gains since the beginning of the year.

The true test of success will be measured by delivering growth over several years, not several quarters. Business leaders will have to walk a tightrope—rewarding shareholders in the short term without forsaking investments needed for future growth. Pushing too hard on productivity savings today may mean less investment for tomorrow, particularly investment in a company's most precious resources—its people and products. Ultimately, in a nation where the consumer comprises 70% of economic activity, demand-based growth must be the key to longer-term performance.

This leaves us with a dilemma: Companies need more robust consumer spending to justify increased payrolls, but without increased payrolls, the consumer is less likely to spend. The way to break out is by enacting temporary tax credit for companies willing to reinvest in jobs.

To earn the credit, companies would have to demonstrate an increase in their U.S. employment levels (excluding the impact of acquisitions and divestitures) year-over-year. And to most effectively encourage businesses to hire new workers, the tax offset must come very close to equalling the additional payroll costs incurred, so the effect on company earnings is negligible. We remain in an environment where there is a reluctance to hire for long-term growth if it means short-term earnings dilution.
Read the whole thing! It may well be worth your time.

Via RealClearMarkets!

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