tax credit

James Politi

One of the biggest concerns at the Federal Reserve and within the Obama administration is the spike in long-term unemployment, which is at its highest levels in the post-second world war period.  And there is a vigorous debate over what tools policymakers can and should use to fight it.

Today, the Treasury department issued a potentially encouraging report on the HIRE act, a new law passed in March which gives a payroll tax exemption to companies hiring workers who have been unemployed for more than two months.

 Alan Krueger, chief economist at the Treasury, said that his research, based on the labor department’s current population survey, found that from February through May about 4.5m hires were eligible for the tax break, which is undoubtedly an impressive figure. But is there a catch? Read more

Economists in the US, have signed a petition for a hiring tax-credit… so civilised. Brad De Long, professor of economics at UC Berkeley (and well-known blogger) has posted a draft letter from a bevy of reputable economists (including Joseph Stiglitz and Mark Zandi) asking Congress to implement “additional emergency policy measures to jump-start job creation.” Their preferred measure – a tax credit.

A well-designed temporary and incremental hiring tax credit is a cost-effective way to create jobs, and could work well in the current environment. At a time when GDP is beginning to rise and demand is starting to return, private firms are likely to respond to such a tax incentive by hiring sooner and more aggressively than they otherwise would have done.

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