O'malley Proposes Tax Credit Of $3,000 For Hiring Unemployed

December 08, 2009|By Jamie Smith Hopkins | Jamie Smith Hopkins , jamie.smith.hopkins@baltsun.com

Gov. Martin O'Malley, heading into an election year at a time of high unemployment, told a crowd of small-business owners Monday that he will ask the General Assembly to approve a $3,000 tax credit for companies hiring jobless Marylanders.

He said he wants the state to give businesses the tax break for each unemployed resident they put back to work. O'Malley, who unveiled the idea at the Greater Baltimore Committee's small-business summit in Baltimore, sees it as a one-year incentive capped at $20 million - meaning almost 6,700 residents could be hired.

Unemployment is a pressing problem as the nation struggles to recover from a deep recession. Though Maryland's October unemployment rate of 7.3 percent was lower than in most other states, it's a 26-year high - and twice as bad as it was just two years earlier. More than 200,000 state residents are looking for work without success.

"We know that a paycheck and job are the lifeblood for every Maryland family," O'Malley said in prepared remarks.

His proposal drew mixed reviews from the business community.

Jeff Levin, general manager of Fields of Pikesville, a store that sells cards and cosmetics and also has a restaurant, said a long-term tax cut would stimulate the economy more than a short-term tax credit. He figures the credit, if approved, will go to businesses planning to hire anyway.

"That person would have been back to work in any event because that employer needed that person," he said, adding, "Where's the state getting money for it? I thought we had a deficit."

Most states offer tax credits for job creation or job retention, according to the Tax Foundation. Kail Padgitt, a staff economist there, said offering tax breaks specifically for hiring unemployed workers is "not an uncommon practice."

New-job tax credits have also been discussed nationally as a revival of a federal program in the late 1970s, another period of high unemployment.

O'Malley's proposal was one of three he made Monday. Saying he frequently hears from small businesses that they would expand if they could get access to credit, O'Malley proposed to put $10 million toward guaranteeing loans made by banks to such companies. He also said he is "committed" to providing relief to businesses facing a large jump in unemployment-insurance taxes, but details are still being hammered out.

With unemployment likely to be the talk of the 2010 election year and Republicans criticizing the governor's response to the recession, O'Malley, a Democrat, has been emphasizing his administration's commitment to creating jobs and touting efforts to help small businesses.

Monday's announcement represents a significant part of his legislative agenda for the General Assembly session that begins in January. Another proposal to be outlined later would extend tax credits for rehabbing historical buildings. That program is set to expire, and aides said it is needed for planned construction projects that also would yield jobs.

Baltimore economist Anirban Basu said the three proposals at the small-business summit seem like sound moves.

"These ideas all appear to address the heart of what ails Maryland's economy, meaning a lack of jobs, a lack of credit availability and rising costs among businesses who can least afford to take on additional costs," said Basu, who is chief executive of Sage Policy Group, an economic and policy consulting firm. "If it takes an election year to move these ideas forward, then thank goodness we have an election year before us."

O'Malley's tax-credit plan drew a less enthusiastic response from Ellen Valentino, state director of the National Federation of Independent Business. Much depends on how such a credit would be designed, including how the state decides to define "unemployed," she said.

"We have not seen the governor's proposal," she said. "Our initial reaction is one of caution."

Padgitt said the Tax Foundation sees job-creation tax credits as bad policy, a "Band-Aid on a wound."

"If you have to basically use the tax policy to almost bribe folks into creating jobs, that tends to mean the tax burden in your overall state is too heavy," he said.

The Maryland Department of Business and Economic Development expects that the credit won't be a net loss of $20 million because newly employed people pay taxes and don't draw as heavily on state services. The most effective way of dealing with state budget woes is to get employers hiring again, said Christian S. Johansson, the state economic development secretary.

"The timing of this is critical," he said. "We don't want to wait for the federal government. We don't want to wait for another year. ... We believe it's timely now, given some of the glimmers of hope that we're seeing in terms of recovery."

Joseph C. Smith, managing partner of Owings Home Services in Eldersburg, part of the homebuilding and remodeling company Owings Brothers Contracting, said $3,000 isn't going to get someone to hire if they weren't already thinking of it. But it could get an employer off the fence, he said.

He's hoping to hire, and wouldn't mind a $3,000-per-person tax break. "It certainly can't hurt."

Baltimore Sun reporter Laura Smitherman contributed to this article.

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