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The case against incentives for hiring unemployed

While Economic Opportunity Act got broad business support, industry quiet on vetoed proposal to improve jobs numbers

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As the budget deadline loomed large last week, lawmakers raced to put the finishing touches on the Economic Opportunity Act that's rewriting the state's corporate incentives programs.

But while that bill enjoyed bipartisan support, another incentives measure to award small companies tax credits for hiring unemployed workers has stalled since getting a conditional veto from Gov. Chris Christie in May.

And while the premise would seem to be a win-win for businesses and workers, the effectiveness of the program — and the political fate of the concept — are far from certain.

The measure was part of a package of job-creation bills unveiled in December by Assembly Speaker Sheila Oliver (D-East Orange), now a candidate for the Democratic nomination in the October U.S. Senate race. Her legislation would have given tax credits to small businesses that expanded their workforces by hired unemployed workers.

Assemblyman Troy Singleton (D-Mount Laurel) said the bill was designed to help small businesses hire new employees “that they might not otherwise be able to afford.”

But “without offering any data to demonstrate that this type of tax credit will lead to increased long-term employment, this bill rushes headlong to implement a potentially $2 billion tax incentive program,” Christie wrote, saying the Legislature should commission a study of the issue before creating a credit that may not work.

The bill doesn't require a cost-benefit report on the program until after it takes effect, Christie added.

The idea of giving tax credits for hiring, or hiring certain categories of workers, isn't a new one. It's been done off and on at the federal level for decades, said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers University.

Whether it works is another story.

“It's mixed,” Van Horn said. “I think it's neither a bad idea nor an automatically terrifically good one.”

The fundamental problem, he said, is that businesses generally don't respond well to outside pressure, regardless of whether the pressure is positive or negative.

Without creating a giveaway for businesses, he said, “the question is, how do you structure a tax credit to get them to hire somebody that they wouldn't have otherwise hired?”

Gordon MacInnes, president of the think tank New Jersey Policy Perspective, said he's skeptical of the tax credit idea.

“I don't think these incentives are usually that big, and I think that people are responding to demand,” he said. “That's what really counts for most small businesses. I don't believe that they make decisions primarily on the effect on their tax bill.”

Michael Egenton, senior vice president at the New Jersey State Chamber of Commerce, said he agrees with the basic concept behind the bill, noting that employers already face higher health insurance costs, as well as a host of taxes and fees.

But, he said, the chamber concurs with Christie's idea of studying the issue first. The chamber has thrown more support behind larger programs to improve the state's overall business climate, like the Economic Opportunity Act and Christie's proposed income tax cut, a political nonstarter with Democrats.

Rather than tax cuts, MacInnes said he'd like to see lawmakers make long-term investments in areas like higher education and infrastructure, which can make New Jersey a more attractive place for businesses.

He noted many of the pharmaceutical companies that have left the state in recent years have gone to similarly high-tax locales, like Massachusetts and California.

Van Horn said the ultimate goal should be to make New Jersey more competitive by building on its historic strengths. He said officials can use a variety of tools to make that happen, from tax credits and tax cuts, to long-term investment and cutting red tape. But he said there are no easy answers.

“That's not something you can turn on a dime,” he said.

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

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