Are jobs bills really what our economy needs?

Public opinion polls now rate high unemployment as the country's most pressing concern, yet Congress has spent more time on controversial health care legislation than on job creation.

While the $17.6 billion jobs bill that Congress enacted last month pales in comparison to the massive 2009 stimulus package, it gave the unemployed some hope that Washington soon would do as promised and pivot to the economy.

And while lawmakers have hinted that more economic stimulus is in the offing, including a small business lending bill, most of the small business experts IB interviewed for this article characterize the recently enacted jobs bill as a more of a job-creation pop gun — when a Smith & Wesson is needed to recover some of the estimated seven million jobs lost since the onset of the recession.

Numbers Game

For some, the net 36,000 jobs lost in February, which came in below projections of 50,000 lost jobs, was a sign that job destruction is close to bottoming out. For others, it was another sign that job creation needs a booster shot.

Amid "D-Week" in the health care debate, the U.S. Senate passed the so-called "jobs bill," which President Obama praised before signing. The bill, which had been modified in the House of Representatives, requiring a second Senate vote, contains some infrastructure funding, but its primary provisions would do the following:

  • Allow employers to avoid paying Social Security taxes for the remainder of 2010 on new hires who have been employed for at least 60 days.
  • Give businesses a $1,000 tax credit for each new worker who stays on the job for at least one year.
  • Extend the $250,000 limit on Section 179 expense deductions.

The Congressional budget office estimates the Social Security tax holiday alone might create only 50,000 to 90,000 jobs.

Even in combination, Tom Milliken, a principal at SVA Certified Public Accountants, believes these provisions will only move companies that planned to hire anyway; they will not move recalcitrant employers with long memories. Milliken noted that it's not a great incentive for businesses to hire someone, take on another $50,000 compensation package, and receive a benefit that amounts to a few thousand dollars of expense reduction.

"What they may do for businesses that are seeing a need to hire more people, it's going to push them to make that decision sooner," he stated. "It's just a little bit more incentive, but I don't think that the dollar amounts involved are significant enough to make a business go out and hire somebody they wouldn't otherwise hire."

Mark Meloy, president/CEO of First Business Bank in Madison, expects more immediate results from the Social Security tax holiday than the tax credit. "I think that's interesting for the small business owner, that is tangible, and it's meaningful. It truly is a savings," Meloy said.

"Tax credits I think are in the future, and tax credits are credits that reduce income taxes that are owed, so that presumes that there is taxable income. Tax credits are meaningful, but have less immediate impact than other things such as the Social Security tax holiday. It's an interesting mix. Is it enough? I don't know."

Attorney Jeffrey Bartzen of the Murphy Desmond law firm said while these provisions are arguably not harmful, they are not that helpful. He agreed that the credits and the tax savings will largely go to companies that would have been hiring anyway, and he equated it to painting the front steps while ignoring the foundation and the roof. "Arguably, the money would be better spent reducing the national deficit," he stated.

Some economists suggest it might be better to avoid racking up debt for marginal job improvements and simply allow the business cycle to run its course. Bartzen sees value in simply doing no harm. He noted that Wisconsin is debating a clean energy bill to reduce energy consumption, especially from fossil fuels, and increase renewable energy sources such as solar and wind power. Reports differ on whether or not this measure would create new jobs.

"I suppose any time you cultivate a new industry, you may create some jobs, but I believe you also have to look at the net effect," Bartzen opined. "Small businesses today are overwhelmed with government regulations which restrict their ability to actually conduct business. From my perspective, anything you do to increase that burden will negatively affect business. While one measure taken individually may not seem onerous, when you stack them all on top of each other, they can absolutely affect whether a business survives or doesn't survive."

Peter Oettinger, partner in charge of Wegner CPAs' Baraboo office, has cited provisions in federal health care bills — one allowing cooperatives to shop across state lines for health insurance for their members, and another requiring transparency for primary benefit managers that administer prescription drug plans — that would promote job creation.

However, he said the most dramatic thing the federal government could do to stimulate job creation is get capital flowing again. He believes bank regulators who are clamping down on banks are overreacting to the bad loans in the housing market, and small businesses are paying the price.

"Normally, I'd lend you money, and you'd launch a start-up business, and then after a certain number of years you could get financing at a bank and pay it back," he explained. "Well, right now you can't do that."

Turning the Corner?

The return of GDP growth in the last two quarters of 2009 is encouraging, but economists like Jan Hatzius, chief U.S. economist for Goldman Sachs, think it could be two years before sluggish growth becomes robust growth.

In addition to encouraging GDP numbers, economic green shoots are starting to sprout. The corporate credit market is showing signs of life, retail sales inched up a seasonally adjusted 0.3% in February despite disruptions from winter storms, and export growth is expected to pick up by year's end.

On the negative side of the ledger, we could see $3 per gallon gas by Memorial Day. Some recent GDP growth is attributed to businesses stocking up on inventories to get back to some prior level, with lower rates of quarterly growth projected through the rest of 2010.

Milliken (SVA) noted that most economic gurus don't envision a robust "V-shaped" recovery; they predict a lopsided "L" with slow growth. "I think that's what we're seeing," he said. "We saw some of the leading economic indicators start bottoming out a few months ago. Hopefully, the latest unemployment figures, with the loss in jobs less than what was expected, are a very favorable trend. Unemployment is a lagging indicator anyway, so bottoming out is going to happen after we're in recovery."

For the time being, he thinks employers are more likely to do more with less, including pay overtime to existing employees, than make an investment in new hires.

Meloy agreed, citing the cost of hiring an employee. "The recruitment, the hiring, the training, depending upon the technical nature of the opportunity, can be days to weeks to months of more outflow than inflow," he noted, "so that can make it very expensive for an employer to hire. In an environment where it's going to bring more revenue to the company, that's a much easier decision to make in expanding the employee base. But when there is less certainty, both in the amount of revenue created and the timing of the revenue to be created, then that hiring decision becomes more difficult."

Psychological impacts also come into play, especially in close-knit small companies. Over the past 18 months, Meloy said businesses have downsized to a level where they can operate in the current environment, and while they recognize the economy is expanding, they are exercising caution in how quickly they expand their workforces. "It was a difficult process for many businesses to go through, and in many cases with our clients, there are decisions that owners had to face with long-time employees that, for small businesses, are extended parts of their family," Meloy noted. "Those are difficult decisions to make, and they were done by business owners that hadn't had to make that decision for several years.

"I think those memories will last a while for employers before they bring back employees too fast."

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