The Senate’s latest stimulus effort, a “jobs bill” named the Hiring Incentives to Restore Employment Act, passed this week with a 70 to 28 margin. 

Procedurally, it now goes to the House, which will either pass it as is or negotiate a larger package with the Senate on the basis of its own bill, the Jobs for Main Street Act, which passed in December. 

Substantively, the act features an incentive for employers to increase their hiring by offering an exemption for Social Security taxes on qualified new hires through the end of the year, as well as a $1,000 tax credit for retaining the new employee on payroll for 52 weeks. The bill also provides a one-year extension of the Section 179 expensing threshold, and extends the Highway Trust Fund and expands the Build America Bonds program.

Practically, the new provisions may provide some temporary stimulus, according to witnesses who testified at the Senate Finance Committee hearing on small business job creation.  However, they raised a number of questions about the overall effectiveness of the measures.

Bill Rys, tax counsel for the National Federation of Independent Business, said, “Extending the higher Section 179 expensing amounts of $250,000 is important for businesses that may be purchasing equipment this year.”

Nevertheless, he noted, proposals that have been offered to provide a tax credit to a business that hires or retains employees “are well-intentioned proposals, but will probably do little to spur significant new hiring.  Providing a tax break for a business that adds a new employee during difficult economic times can help to defer some of the cost associated with adding a new worker and may move a business that is on the edge about hiring, but a tax credit is not going to be a big incentive to add a new employee.”

There are some reasons to think the credit may have some beneficial effect on employment, according to Eric Toder, Institute Fellow at the Urban Institute and the Urban-Brookings Tax Policy Center. “Because it is only available for hires in 2010, it could encourage some firms to hire workers late in 2010 who they otherwise would have hired in 2011,” he said. “This acceleration of jobs would not directly increase employment in 2011 and beyond, but could indirectly raise jobs in 2011 if the new hires help accelerate the economic recovery by spending some of their increased wages.”

“The House had a much bigger version that they passed in December,” said Avery Neumark, CPA, JD, partner-in-charge of Employee Benefits and Executive Compensation at New York regional firm Rosen Seymour Shapps Martin & Company LLP. 

“This one is basically a toned-down bill,” observed Neumark, a member of the board of directors of the New York State Society of CPAs. “The House also passed an extensive extenders bill, including Child Tax Credit enhancement, the state sales and local sales tax deduction, the teacher’s classroom expenses deduction and the research credit.  The Senate Finance Committee also had a bill which proposed certain of these extenders, but they’re not in the bill that was passed.”

“One of the issues for employers is how much they will really save,” he noted. “Payroll taxes are deductible by employers, so they will have a smaller expense because they’re not paying that amount. And of course, the exemption is only good through the end of the year, and we’re almost in March.”

“But you have to start someplace,” he said.  “Given the bottleneck that Congress is in, it may be better to work with smaller pieces.  You’re not going to get a big bill with everything everybody wishes, so if this is where they want to start, that’s fine.”


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