Tax credits to stimulate the economy?

The ill-conceived idea to stimulate the economy through a tax credit for firms that increase employment shows an academic economist’s fundamental lack of understanding of why companies increase employment.

Jobs are a byproduct of increased sales and revenues. Companies do not like to hire employees. They are expensive, require management and cannot be easily laid off in the event of incompetence or loss of business.

Companies increase employment because they have additional business that needs to be processed, and they cannot process it through overtime or increased capital.

No businessman in his right mind would hire someone merely because labor is 10 percent cheaper because of tax credits. He would only increase employment if that is his only alternative to process additional business. If he has additional business, then he will hire additional employees regardless of the 10 percent credit.

Therefore, the credit is an inefficient way to increase employment and a waste of taxpayer money.