July 12, 2010 / 2:32 PM / 7 years ago

Treasury links 4.5 million new hires to tax credits

WASHINGTON (Reuters) - U.S. businesses eligible for a new employment tax credit hired 4.5 million new employees from February to May, the Treasury Department said on Monday -- but it declined to draw a cause-and-effect conclusion.

“I would say that the jury is completely out on the number of jobs that will be added on net because of the HIRE Act,” Treasury Assistant Secretary Alan Krueger said, referring to the Hiring Incentives to Restore Employment Act passed in March.

Under the act, businesses that hire people who have been out of work for at least two months do not have to pay the Social Security payroll tax contribution equal to 6.2 percent of their wages through year-end. If the new hires remain employed for a full year, the company gets another $1,000 tax credit.

In a study released on Monday, the Treasury said qualifying firms would be eligible for a total of $5.1 billion in payroll tax savings so far, based on an average weekly wage of $513 for the new hires. If workers are kept for a full year, they would get another $3.4 billion in tax relief, making for a total of up to $8.5 billion in tax benefits -- if all these firms make claims for all 4.5 million workers.

Part of the reason for releasing the survey was to draw more attention to the program, which provides unlimited tax credits through year end as an incentive to jump-start hiring. With the unemployment rate stuck above 9 percent, slow job creation is one of the most difficult problems for the U.S. economy -- and for lawmakers facing re-election in November.

With Republicans increasingly reluctant to approve new spending measures aimed at stimulating the economy, the Obama administration is trying to get as much mileage out of existing programs as possible. Although the congressional Joint Committee on Taxation estimated the HIRE Act would cost about $13 billion, the program carries no cap on the amount of credits that can be earned through year end.

UNTANGLING DATA

Krueger on Monday visited a recently reopened textile mill in Sanford, North Carolina, where the owner, Parkdale Mills Inc, will earn tax credits for about 30 new workers.

Parkdale President Andy Warlick praised the program but admitted in a conference call with reporters that it’s difficult to determine whether the company would have hired workers without the incentives. The decision to reopen the mill and expand Parkdale’s operations was partly due to retailers rebuilding inventories of blue jeans, t-shirts and other products that use Parkdale’s cotton yarn, he said.

“In the case of these 30 jobs that we’ve already got here it probably did not have a direct effect. But what it will do for us is it will help us add additional jobs,” Warlick said. He added that the credits lower the company’s overall operating costs, allowing it to better compete with lower-wage foreign yarn producers.

Krueger added that determining the number of added workers attributable to the act is a “difficult statistical problem” and more study will be needed.

The Treasury study compared responses from the Labor Department’s Current Population Survey -- the basis for the government’s labor force data and the unemployment rate -- for three consecutive months to May.

Despite the difficulty in assessing the effects, Krueger called the program a targeted stimulus measure that would give firms an incentive to hire sooner rather than later. For the average wage of the 4.5 million workers cited by Treasury, employers could see up to $3,500 in tax savings for each , however that smaller firms may not be as aware of the credit as larger firms with larger human resources departments.

“If the word gets out and the more employers are aware of it; one could see large effects in terms of hiring,” he added.

Reporting by David Lawder; Editing by Chizu Nomiyama

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