.

SmartMoney Blogs

The Tax Blog
The latest news, insights and tips about taxes

Will Tax Cuts Spark Hiring?

Read more than one story about the proposed tax deal struck by Senate GOP leaders and the Obama administration, and you’ll see wide-ranging disagreement among economists and even business owners about how much of an impact the deal will have on the job creation.

Yet with unemployment hovering around 9.8%, most at least share the hope that the deal will result in significant hiring. The $858 billion deal would also extend all Bush-era tax cuts and unemployment benefits, and offer other tax breaks for individuals (like a two-percentage-point payroll tax reduction for 2011) and businesses (like a research and development tax credit).

Those in favor of the tax cuts argue that keeping taxes low will prompt businesses to hire more. Businesses cited by a New York Times article said they would increase their payrolls in response to the cuts. Meanwhile, other economists fear that the constant flux of tax rates—most of which expire after two years—will discourage businesses from hiring because they can’t be certain of the tax situation down the road, according to a Wall Street Journal story.

Executives say it’s a lack of demand for their products that’s holding back hiring. A survey by Bank of America conducted this fall found that 61% of CFOs who don’t expect their companies to hire in 2011 cite insufficient demand.

Even if demand rebounds, some companies have streamlined processes and implemented new technologies that might help them keep headcount low.

So how, exactly, could tax cuts spur hiring? Two key ways, economists say: For starters, tax cuts for businesses leave companies with more money to invest in growth. Cuts for individuals give them more money to spend on products, increasing demand, which would, in theory, prompt the companies to hire.

Moreover, certain provisions of the tax deal would allow businesses to immediately deduct the costs of certain investments—new equipment or software– in 2011, which might encourage faster investment, says Moody’s Analytics chief economist Mark Zandi.  (Normally, businesses have to deduct those purchases over time.) “Businesses are piling up cash and have tremendous firepower but lack the catalyst to deploy it. [This] could jumpstart hiring,” he said.

Moody’s Analytics estimates that the unemployment rate will average 8.7% in 2011 compared with the 9.9% it would have been had the bill only included the provisions that were already widely anticipated, such as holding tax rates unchanged for taxpayers earning less than $250,000. Another analysis put together by Macroeconomic Advisers LLC estimates that, if the bill passes, the average unemployment rate in 2012 will be two percentage points below what it would have been had the bill not passed.

The proposal should help companies create jobs more quickly than they would have otherwise, but the benefits –and possibly those jobs –will disappear in a few years unless the economy is able to sustain growth on its own, says Chris Varvares, senior managing director of Macroeconomic Advisers.

Readers, what do you think? Will the tax cuts lead employers to hire?

Comments

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (2 of 2)

View all Comments »
    • By WebOsPublisher

      Anolis Resourcer – Resource Hacker Software – Anolis
      Anolis
      xpize
      Vize
      About and News
      Software
      Tutorials
      Packages
      Codeplex
      Discussion Forums
      Anolis Resourcer
      What is Resourcer?
      Windows executables (or more specifically, Win32 PE files) often contain a small database of resources, these are graphics files, text strings, icons, and other programming paraphernalia. Often it can be advantageous to modify these resources, such as to modify a program’s visual appearance or to correct a mistranslation in a string table. Anolis Resourcer is a “resource hacker” program which enables you to do this.
      Anolis Resourcer is a free and open-source utility to view, replace, add, delete, and extract resources located in 32-bit and 64-bit Windows executables and resource (*.res) files. It is written in C# and runs on any system for which the .NET Framework 2.0 exists (i.e. Windows 98 and later).
      Features
      Viewing Resources
      Supports viewing bitmaps, icons, cursors, a wide variety of image formats (GIF, JPEG, PNG, and more), AVI animations. Menus, Dialogs, Version Information, and String Tables can all be viewed and dissected.
      There is also a thumbnail view for most resource data formats so you can see them all at a glance without having to extract them individually. Three thumbnail sizes available (16×16, 32×32, and 96×96)
      Exporting and Extracting Resources
      All resources can be saved to disk as a raw data file (*.bin), additionally most “known” data types, such as images, icons, and cursors can be saved to their appropriate file formats.
      You can also batch extract all resources (or just “visual” resources) from a single file, or a directory full of executables in a couple of mouse-clicks. Select the “Batch Export” menu item under Tools or the Open Button’s side menu.
      Replacing and Updating Resources
      You can replace most resources with their file-based equivalents (i.e. replace a Bitmap resource with a *.bmp file, or an Icon Directory resource with an *.ico file). Further options are available for some types, like icons (see “Intelligent Icons” below).
      Some resource types don’t have a special file format (like Version Information, or String Tables), in which case during replacement their raw data is replaced with the raw data from a file. Use caution with this procedure.
      Intelligent Icon Replacement
      Icon resources are stored in two places: the “directory” containing references to sub-images is stored in the Icon Directory resource, and the actual images that make up an icon are stored in the Icon Images area.
      Most resource editors delete the old subimages before adding new ones and overwriting the directory. Resourcer has the option to “merge” icons instead, so you end up with the union of the original icon and the new file’s icon.
      Vista MUI and RC CONFIG Aware
      Windows Vista introduced some changes to the resource model with “RC Config” and MUI files. Resourcer is aware of these changes and can work around them to achieve the results you’re after.
      x64 Support
      Resourcer runs on the .NET Framework, so it will run as an x64 program on x64 systems (and thus, not be subject to x64′s WOW64 filesystem and API sandboxing).
      But more importantly: Resourcer can perform the same operations it does on 32-bit executable files as to 64-bit executable files, ensuring forwards-compatibility for modern computing systems.
      Ancillary Features
      Portable – Requires no installation, just extract and run
      Command-Line Arguments – Automate resource tasks from a batch/command scripting environment
      Extensible and Developer Friendly – Reference Resourcer in your .NET projects to allow your programs to work with resources directly. You can also extend Resourcer with your own code for working with specific resource data types and source file formats.
      Screenshots
      See the screenshot page.
      License
      Anolis Resourcer is licensed under GPLv2. In a nutshell it means:
      You are free to redistribute Resourcer’s source code or compiled executables (as long as it isn’t modified)
      If you make modifications to the program, you must distribute them under the same GPL license (and provide the changes’ source code)
      Resourcer is provided without any warranty.
      Download
      Download the latest version from CodePlex.
      The latest version is 0.9, released 1st September 2009, 387KB. Download.
      Icons by DryIcons.

    • This is lame. The deal is to avoid RAISING taxes, not lowering taxes. Of course the deal won’t create new jobs but it may prevent new job losses. You’d expect a tax blog to get this kind of thing right!

About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.

.