The idea of a tax credit for companies that create new jobs, something the federal government has not tried since the 1970s, is gaining support among economists and Washington officials grappling with the highest unemployment in a generation.
The proposal has some bipartisan appeal among politicians eager both to help their unemployed constituents and to encourage small-business development. Legislators on Capitol Hill and President Barack Obama's economic team have been quietly researching the policy for several weeks.
"There is a lot of traction for this kind of idea," said Rep. Eric Cantor of Virginia, the Republican whip. "If the White House will take the lead on this, I'm fairly positive it would be welcomed in a bipartisan fashion."
In addition to the economists working on the proposal, some heavyweights support the concept, including the Nobel laureate Edmund S. Phelps, Dani Rodrik at Harvard University and former Labor Secretary Robert Reich.
One version of the approach, to be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, would give employers a two-year tax credit if they increase the size of their work force, or add significant hours of work (say, making a part-time worker full-time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, or several thousand dollars depending on the new worker's salary.
"It's beautiful if it can be timed at a dire moment like this when unemployment is way too high and appears to be going somewhat higher," said Phelps, a Columbia University economics professor, lamenting that the president dropped it from the $787 billion stimulus plan last winter. "But it's a pity that this wasn't done a year ago. We could have saved ourselves a good part of the downturn."
One of a number of ideas being discussed, the policy is intended to encourage companies to start hiring again by making it cheaper to add new workers. It has raised concerns, though, that employers might try to game the system.
States have dabbled with similar tax credits in recent years, with mixed results. The federal government last tried this measure in 1977-78. During that period, employment - which had been soft from the 1973-75 recession - climbed at a record pace. The creation of one out of three jobs that qualified for the credit then was attributed directly to the new policy. But the permanence of those jobs is less clear, and some dispute how many of those positions would have been created eventually anyway.
Supporters say that improvements upon the 1970s policy would increase its potency. These include better publicizing the credit; making it available even to concerns that are not making money, in the form of a direct payout to nonprofits and companies in the red; and distributing the credit quarterly so that companies see it sooner.
Timothy Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 per job created.
But some dismiss the idea as corporate welfare.
"Some bad ideas never go away," said Howard Gleckman, a senior research associate at the Urban Institute. "It's just providing incentives to lots of companies that probably aren't going to make it in the end anyway."
Under the proposal from Bartik and Bishop, the credit in the first year would equal 15.3 percent of the cost of adding an employee. In the second year, the tax credit would fall to about 10.2 percent of that cost.