Why Obama's tax incentives for small business will backfire

President Obama proposed to give tax incentives to small businesses to hire more people. This sounds like a generally good idea, unless you happen to have any practical experience which  is sorely lacking in this administration.

Suppose you are a business that has held on to valuable employees for the last year at a great financial cost.  You are now supposed to compete with a startup that has preferential tax treatment because he is hiring new employees.  Or perhaps you must now compete with an existing competitor that was less financially sound and thus had to lay off workers. He may now get a tax break to hire them back.  You must then compete with more expensive workers than your competition. Instead of creating an incentive to hire you may have created an incentive to lay off workers.

Because the president decided to float this idea in his supposed "State of the Union" with an audience of 48 million viewers, employers who may be considering hiring back workers may elect to delay this as long as possible in order to get the tax credit mentioned, which may be far from being enacted. This would likely  delay any employment rebound.

And why should such a benefit only be allowed for ‘small' business?  With such high unemployment don't  we  want to encourage hiring from large businesses as well?  If a small business gets preferential treatment for a new hire is he not discouraged from growing beyond the magical and arbitrary tipping point and losing that tax break? Will the job ‘created' by the small business come at the expense of another job in a larger company, negating any benefit?

Such micromanagement of the economy is not surprising from the moral supremacists who are more interested in  imposing their view of social justice than truly enabling the economy to allocate capital and create jobs.  A simple tax cut for all businesses makes resources available to all employers.  But even this may not overcome the uncertainty of the pending Union Card Check bill, Cap and Trade costs, numerous pending tax increases,  and higher health care costs from the stalemated health care  bill.

Higher minimum wages and extended unemployment benefits are also disincentives to employment.  You can't raise the costs of doing business with numerous bills, and then expect any results from a jobs tax credit, regardless of what size business you decide to target.



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