Seven and a half million jobs have disappeared since the recession began in December 2007. Little wonder that the Obama administration is under growing pressure to create more jobs, and quickly.

To supplement the $787 billion economic stimulus program Congress passed last winter, some economists are proposing a tax credit for employers who add workers to their payrolls, a plan last tried during the Carter administration in 1977 at a time of weak economic growth.

The idea has yet to gain traction in Congress. But the New York Times reported that the Economic Policy Institute, a Washington think tank that promotes the interests of low- and middle-income workers, this week will propose giving employers a two-year credit worth twice the first-year payroll tax of each person they hire or give significantly more hours of work.

A ‘burst of hiring’?

“It is possible to encourage a burst of hiring by providing refundable tax credits of 10 to 15 percent of wages for each new hire over the next two years,” Lawrence Mishel, the group’s president, testified before a House Ways and Means subcommittee last week. “Employers who are uncertain about the near future could overcome their doubts and reluctance to hire if offered a substantial incentive.”

Indeed, during his presidential campaign last year, Barack Obama advocated some form of direct tax incentive to promote job creation, but the idea never made it into the stimulus bill.

A broad consensus of economists concedes that the employment situation will remain bleak over the short term. For instance, a survey of 50 economists by the Wall Street Journal last week showed that most believed unemployment will be at 9.4 percent in December. But some are skeptical that a subsidy for employers would be the most effective policy tool or worth the cost to the government.

“The problem you face with the tax credit is … you often subsidize people who would end up hiring workers anyway,” said Jeffrey M. Perloff, a professor of agricultural and resource economics at the University of California at Berkeley, who is coauthor of a research study of the 1977 tax credit. But adding rules to screen out employers who don’t need a subsidy can make a plan so complicated that small-business owners find it too hard to understand and use.

Perloff also worries that it might take so long for Congress to get such a program running that the economy will recover on its own, and the tax credit will “wind up costing the government money for no good reason.”

His study of the 1977 credit found that only 34 percent of surveyed firms knew that the tax credit was available; only 6 percent of firms that knew of its details used it to boost employment. According to a Congressional Research Service report in January, the government lost about $5.7 billion in revenue as a result of the program.

Mark Zandi, chief economist for Moody’s Economy.com, sees the economic recovery as “fragile” and says there is a “reasonable risk” it could stall or fall back into recession, so he supports another dose of government spending.

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