Md. job-creation tax credit gets few takers so far

Businesses have signed up for less than 10% of the money

September 23, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Relatively few employers have applied to claim a state tax credit for hiring Marylanders off the unemployment rolls, raising questions about its effectiveness as a job-creation tool.

Six months into the program, businesses have qualified to collect less than 10 percent of $20 million the state budgeted. Total hires: 350 previously unemployed people. The first-come, first-served program could support 4,000 tax credits of $5,000 each; businesses have until the end of the year to apply.

What kind of government intervention could goose the economy is the subject of fierce debate — one that is likely to become more heated as the November elections near. While states and the federal government have spent billions in stimulus dollars and given various tax breaks, unemployment remains near record highs set in the early 1980s. Maryland's rate rose to 7.3 percent last month.

The small queue for the state's job-creation tax credit doesn't mean that no one's hiring, however. Employers have added more than 17,000 jobs in Maryland since the tax credit took effect in the middle of March, even accounting for some downsizing this summer. Not every new hire meets the criteria for the credit, but many more than 350 probably do.

Some say that too few employers realize the incentive exists despite state efforts to spread the word.

Demand for these types of tax credits "is just remarkably low in view of what the government is willing to hand out to employers," said economist Gary Burtless, who is a senior fellow at the Brookings Institution, a Washington think tank. "It makes you question whether it is achieving any net gain in employment at all."

Linda Gasch, co-owner of Gasch Printing in Odenton, heard about the Maryland program only after she'd hired someone and discovered — by a happy coincidence — that her business qualified for a credit.

"My sense is that people don't know about it," said Gasch, whose Anne Arundel County business employs 14. "The word just isn't out there."

Federal tax credits for hiring the unemployed are also available this year, though it won't be clear until next year how many businesses will claim them. The Treasury Department is offering monthly updates on the number of hires that meet the criteria in hopes of bringing more attention to the program. The agency estimates there are tens of thousands of eligible hires in Maryland alone.

Maryland officials said participation in the state program could still rise significantly in the next few months.

"That's certainly our hope, that hires have already been made and employers are simply waiting to have critical mass so they can go through the application process all at one time," said Bernie Kohn, a spokesman for the state Department of Labor, Licensing and Regulation.

Gov. Martin O'Malley, a Democrat who faces a tough re-election challenge from predecessor Robert L. Ehrlich Jr., proposed the credit in December while the unemployment rate was at a 26-year high. He also called for an expansion of a tax break for rehabbing historical buildings and loan guarantees to help small businesses get credit.

"The tax credit was always meant to be one tool in a variety of initiatives that the governor has pushed to revitalize the economy and create jobs," said Shaun Adamec, a spokesman for O'Malley.

Andy Barth, a spokesman for Ehrlich, said the problem with the state and federal job-creation tax credits is "they don't attack our economy's underlying problem: lack of demand."

"Many small business owners have told Bob Ehrlich they don't take either tax credit seriously because they don't cover the cost of hiring the employee, because client demand for services is low, and because they are concerned about state government's hostility toward entrepreneurs," Barth said in an e-mailed statement.

More demand is critical for hiring, said Ron Wineholt, vice president of government affairs at the Maryland Chamber of Commerce. Still, the chamber supported the tax credit legislation and has promoted the program — called the Hiring Incentive Rebate for Employers, or H.I.R.E. Maryland — in newsletters to members.

"We're still hopeful it could make a difference in accelerating some employers' job hires," he said. "But the participation seems fairly modest to date."

Adamec said the state is trying a many-pronged approach to get the word out.

As O'Malley campaigns around the state, he is encouraging businesses to apply. The Maryland One-Stop Career Centers are helping employers find people who would qualify them for the incentive and counseling job seekers to use their unemployed status as a selling point.

In webinars for employers, the state labor and economic development agencies tout the ease of the program, pointing out that the online application system does the work of determining whether hires qualify.

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