Democrats were “disheartened” Tuesday when Republicans called their proposed jobs bill “weak” and “ineffectual.”
Democrats from four of the most highly contested state House districts — Van Braxton (Greene), Hugh Holliman (Davidson), Randy Stewart (Nash), and Alice Underhill (Craven) — filed House Bill 1721, the H.E.L.P. Small Business Act May 13 in an effort to, sponsors said, “show small business we care about them.”
With polls showing jobs as the No. 1 issue this election season, politicians are conscious of measures designed to boost employment.
The bill would increase tax credits for small business investments, create new tax credits for hiring new employees, renew a tax credit for providing health insurance, increase funds to community colleges, and expand access to small business loans.
Republicans say the tax credits come with strings attached and cost more than they are worth.
For example, the $1,000 credit for hiring a new employee must be returned if the employee quits or is not kept for three years. When broken up over a three-year period, the credit works out to $333 per year for each full-time employee.
“No employer in his or her right mind would hire or retain somebody for the possibility of getting $333 dollars,” House Minority Leader Paul Stam, R-Wake, said in a House Finance Committee meeting Tuesday.
Joe Coletti, director of health and fiscal policy studies at the John Locke Foundation, said it costs employers about $20,000 a year to keep a minimum wage employee. He said it was unlikely that a small business owner would commit $60,000 to invest in a tax credit worth $1,000, unless the business planned to hire that worker anyway.
In a press release, Republicans also criticized the bill’s tax credit for small businesses that provide health insurance, worth $250, saying it would “barely cover one month’s insurance.”
“You’re not going to change your decision about whether to cover your employees based on a fraction of the cost of doing it,” said Coletti.
Also, although the bill defines small businesses as those with fewer than 100 employees, both credits would be available only to businesses with fewer than 25 employees.
Finally, Stam targeted the proposal raising the cap on tax credits for investment from $7.5 million to $8 million, saying, “It doesn’t accomplish a whole lot.”
GOP amendment fails
Rep. John Blust, R-Guilford, said the bill reminded him of Geraldo Rivera opening Al Capone’s vault in the 1980s. “We’re going to open it and find out there’s nothing there,” he said.
To beef up the bill, Blust offered an amendment capping the individual tax rate on business income at 5 percent.
“I wanted to do something real, and the thing you do that’s real to help small businesses is lower their marginal tax rate,” Blust said at a press conference, after his amendment was rejected by the House Finance Committee.
“To hear in the 11th hour a proposal for an amendment that could cost [the state] $125 to $150 million, that did not have much time for scrutiny and hasn’t been scrubbed in a study commission, concerns me,” said Rep. Jennifer Weiss, D-Wake, a co-sponsor of the bill.
“I find it a little disheartening that here we are trying to show business we care about them, especially small business, and then [you] turn around and do this,” said Rep. Pryor Gibson, D-Anson, another co-sponsor.
The committee voted along party lines, with all Democrats voting against the amendment and all Republicans voting in favor.
Republicans then joined Democrats in passing the bill unanimously, even without Blust’s amendment. If the bill makes it through the Appropriations Committee, Blust said he plans to propose his amendment again on the House floor.
When asked why GOP lawmakers voted for a bill that, Stam said, “wouldn’t do anything for job creation,” he replied that it didn’t hurt to provide a “little bit of tax relief for small business.”
“It really doesn’t do anything bad,” Blust said. “It’s akin to someone suffering from a terrible fever, and instead of solving the root cause of the fever, we’re going to take a cold, damp cloth and pat their forehead. I’m all for patting the forehead, I’d just like to go further and solve the underlying problem.”
Too few jobs, too much cost
Coletti goes a step further than Republicans, who call the bill harmless. Not only is the bill weak in the way of creating jobs, it costs the state too much money, he said.
The bill proposes to create 480 jobs over the next three years at a loss of $16 million in taxes to the state. In other words, it would cost the state $34,000 per job created. Coletti said, at that price, the state might as well pay the employees’ salaries.
The Republican alternative of lowering the marginal tax rate to 5 percent is a step in the right direction, but it’s unrealistic, Coletti said.
“If you’re going to criticize something for having a small impact, you don’t want to promise a large impact that isn’t going to materialize,” he said.
“The real way that you help businesses is you go on the other side of the ledger and you deal with the spending,” he added. As you gradually reduce the spending, you gradually reduce the tax rate.
Coletti has developed a plan that would cut spending and reduce the income tax rates — corporate and individual — to 6 percent within two years. Over time, he said, rates could be knocked down further.
Simplifying and equalizing the tax code, Colletti added, is “not anything that’s going to yield a one-time POW, but it will lead to a sustainable government and economy.”
Sara Burrows is an associate editor of Carolina Journal.