President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law Thursday morning, taking aim at the nation’s persistent 10% unemployment rate, which is widely seen as one of the biggest obstacles to a sustained economic recovery. The law, which passed the Senate on Wednesday with bipartisan support, provides employers with new incentives for hiring and retaining workers.
The core provision of the act is $13 billion in tax breaks for private-sector businesses that hire unemployed workers this year. The new legislation waives the 6.2% Social Security payroll tax until December 31, 2010, for each new worker a company hires, as long as that worker has been unemployed for at least 60 days. In addition, there is a tax credit of up to $1,000 for each qualified new hire the company retains on its payroll for at least 52 consecutive weeks.
“Those provisions would certainly apply to a fairly broad range of businesses, and they would particularly apply to businesses that are in recovery from the recession and are in hiring mode,” says Mark Luscombe, principal federal tax analyst at CCH, a provider of tax and audit software and services. “But there’s a lot of debate about whether they are generous enough to cause a business to hire someone they wouldn’t otherwise hire. Businesses aren’t going to go out and hire someone just for the tax break.”
Cosmo Alberico, finance chief at Odyssey Logistics and Technology, a transportation and supply-chain management company that has continued to grow throughout the recession, agrees. “If companies don’t have a need to hire because the demand for their products or services is so reduced that they don’t need people, this bill isn’t going to alter their decision,” he says.
The reluctance to hire remains widespread, even as some signs point to a strengthening economy and the stock market reaches levels not seen in more than a year. According to the most recent Duke University/CFO Global Business Outlook survey, released earlier this month, U.S. finance chiefs expect to increase their domestic full-time workforces by less than 1% over the next 12 months. Even temporary hiring will remain weak.
Still, adds Luscombe, the incentives offered in the new bill could cause companies to consider hiring a full-time worker rather than a temporary one. “One advantage of using a temporary agency is that it bears the responsibility of paying payroll taxes,” he says. “If you don’t have to pay those taxes for the rest of 2010 anyway, it might push you to make a permanent hire this year.”
Alberico says the legislation will benefit Odyssey. “It doesn’t accelerate or alter our hiring plans, but we will certainly take advantage of the tax break and use the cash to invest further in the growth of the company,” he says. Freeing up cash for growth companies could lead to more job growth eventually, he adds.
The bill also allows small businesses to write off $250,000 of the cost of new equipment purchased this year, rather than having to depreciate the cost over time. While this incentive should also help businesses that are poised for recovery, it may not be enough for those still struggling to regain their footing.
Additional jobs and unemployment-related tax legislation is expected to make its way through Congress soon, including extensions to COBRA benefits and targeted small-business tax relief.