Maryland Governor Martin O'Malley is pushing hard for a state tax credit – among other measures – that is intended to help his state get people off the unemployment rolls and back to work. The basic idea is that every new hire that exits the unemployment rolls will result in a $3,000 credit for the employer. If implemented, this program will be available during 2010, but will be capped at $20 million. That means an estimated 6,700 new hires could generate the credit. In Maryland, where unemployment is at 7.3 percent (as of October), there are approximately 200,000 individuals looking for work. The rate is lower than most states, but about twice as high as it was two years ago.
The hiring credit is just one measure that O'Malley is proposing to stimulate the local economy. In a press release on the governor's official Web site, he outlined his three-point economic agenda.
- Streamline the loan approval process for small businesses and expand access to credit by creating the Maryland Small Business Credit Recovery Program, offering a loan guaranty on small business deals through the Maryland Department of Business and Economic Development's current loan guaranty program - the Maryland Industrial Development Financing Authority Program (MIDFA). Approved banks will be able to apply for up to a $50,000 MIDFA guaranty and a Rapid Response Program will be developed that will offer a 48-hour approval turnaround on loans needed up to a $250,000 guaranty. The initiative could leverage up to $64 million in new private sector lending for small businesses.
- Create jobs by establishing a Job Creation and Recovery Tax Credit, which would award businesses a $3,000 tax credit for every unemployed worker it hires. The initiative, which is proposed for one year with a $20 million cap, would boost job creation and take the pressure off the State's Unemployment Trust Fund.
- Introduce emergency legislation to address the rate increase for small businesses to the Unemployment Trust Fund.
How is the news of the proposed credit being received? Reviews are mixed.
Jeff Levin is the general manager of a store/restaurant in Maryland, who says he would rather see a long-term tax cut than a short term stimulus program. Levin believes that any hiring that will be done would have occurred anyway. "That person would have been back to work in any event because that employer needed that person", he told reporters. More importantly, he wants to know",Where's the state getting money for it? I thought we had a deficit."
"Most economic growth in our state will be generated from within, so this commitment to small business by Governor O'Malley is very welcomed", said Greater Baltimore Committee President and CEO Donald C. Fry. "Small business is big business in Maryland and we must continue to support our small businesses and develop innovative solutions to help them grow."
Republicans say the hiring credits are just election year politics, but Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic and policy consulting firm, says the measures seem sound.
"These ideas all appear to address the heart of what ails Maryland's economy, meaning a lack of jobs, a lack of credit availability and rising costs among businesses who can least afford to take on additional costs", says Basu. "If it takes an election year to move these ideas forward, then thank goodness we have an election year before us."
Ellen Valentino, State Director of the National Federation of Independent Businesses, wants to know more about the design of the credit and the definition of "unemployed." "We have not seen the governor's proposal", she said. "Our initial reaction is one of caution."
The Maryland Department of Business and Economic Development defended the credit, telling reporters that it will not create a net loss for the state. New hires pay taxes and use less in terms of state services. They believe that jumpstarting hiring is a good way to turn around Maryland's budget problems, says state economic development secretary, Christian S. Johansson. "The timing of this is critical", he said. "We don't want to wait for the federal government. We don't want to wait for another year. ... We believe it's timely now, given some of the glimmers of hope that we're seeing in terms of recovery."
Kail Padgitt, economist for the Tax Foundation says the Foundation sees job-creation tax credits as bad policy, like using a Band-Aid to fix a wound. "If you have to basically use the tax policy to almost bribe folks into creating jobs, that tends to mean the tax burden in your overall state is too heavy", he says. He also said that most states have some sort of job creation hiring credit. This is "not an uncommon practice."
What is being considered in other states? Here are a couple of examples:
State senator Harvey Peeler of South Carolina and 19 of his fellow senators would like to see a tax credit of $100 per month, for 24 months for new hires off the unemployment rolls. J.J. Darby, South Carolina state director of the National Federation of Independent Business believes this could work.
"The bill makes a lot of sense", Darby told reporters. "I think the senators are taking a very practical, commonsense approach to dealing with the serious unemployment problem in our state. I appreciate Sen. Peeler's leadership in trying to help both businesses considering hiring and people looking for work here in South Carolina."
Robert Bentley, who is running for governor of Alabama where unemployment is at 11 percent, is promoting a much bigger hiring credit. He wants to give companies that hire off the unemployment rolls $10,000 per new hire. Bentley says that any job that pays $25,000 per year would, in effect, pay back the credit. Adding together state income taxes and sales taxes paid by the newly hired worker, and the fact that he or she would no longer be receiving state unemployment benefits and drawing heavily on other state services, it should be close to a wash, he says.