A recent article in The New York Times suggests that various members of Congress and the Obama administration have begun considering a program that would provide tax credits to employers who take on new employees.

A version of the program was apparently most recently implemented in 1977, when unemployment was similarly elevated from an economic recession. The current plan is still in its proposal stages, but here are the basics of how it would work.

• Employers would take on new staff members, or extend the hours of current employees. Jobs are often the last part of the economy to pick up after a recession, so the tax credit would initially stimulate hiring.
• Employers receive a tax credit for the new hires. While the credit could take a variety of forms, it would essentially mean that employers were relieved in some way of their payroll taxes. Thus, hiring a new person would be less expensive than it would be otherwise.
• Businesses bring on workers sooner rather than later. The intended effect of such a measure, naturally, is that employers begin hiring sooner than they would have otherwise, since they would in practice get new workers for a discount.

Some economists apparently think that, timed right, a tax break of this kind could stimulate hiring like few other measures.

Bankruptcy and Potential Drawbacks

Naturally, the new-hire tax credit is by no means a guaranteed solution to the problem of unemployment. Among its flaws, some critics point to the following:

• Potential employer exploitation: Some employers could take advantage of the “discount employees” they’d get by hiring while the tax credit was effective and firing the employees as soon as the savings ended.
• Potential aid for dying companies: Another drawback could be that the credit would end up supporting companies that are in the process of going out of business, are not sustainable, or are at risk of filing bankruptcy; and that the jobs in those businesses would end before very long.

Again, this potential economic stimulant is still in its very early stages, so check this blog for updates as more information becomes available.