A New Tax Credit

THE CONTENTS of a White House option paper leaked to the press this Thanksgiving weekend caught the nation off guard. While the spectre of a national unemployment rate of 10 percent (the highest since the depression) hovered over turkey-laden tables like an unwanted guest, a proposed plan to reduce teenage unemployment through government subsidy was--and is--more than welcome.

Buried beneath a proposal to tax unemployment benefits contained within the same paper, the plan to target teenagers as a group in special need of employment comes in response to the more than two million unemployed youths aged 16 to 19. The plan, one of several under consideration, proposes to increase the demand for teenage labor by offering employers a tax credit for part of the full minimum wage they would pay young workers. This translates into as much as a 50 percent reduction in after tax costs.

Although the proposal does not represent a new approach to the problem of teenage unemployment, it comes at a time when authorization for a similar program--the Targeted Jobs tax credit which then-President Carter implemented in 1979--is about to expire. A 1982 Congressional Budget Office report shows the program met with some success. For an approximate cost of under $2,000 per full-time job, teenage employees gained valuable private-sector work experience--a sound basis for employment as adults. Another advantage to this type of program is that it indirectly increases overall employment by reducing labor costs. The flaws, of the program under Carter--that it was a windfall to some businessmen who would have hired teenagers anyway, and that it caused companies to fire ineligible adult workers--could be remedied in a revised plan.

For example, to lessen the amount of windfalls, the Administration could exclude already-hired teenagers from eligibility for the tax credit. It wasn't until two years after the start of Targeted Jobs that Carter decided to forbid retroactive certification, under which two-thirds of workers being subsidized claimed eligibility.

That subsidized teenagers would displace skilled adult workers is highly unlikely; rather, it is the low-wage adults, with whom teenagers usually compete for jobs, who might be replaced. A new proposal could set a six-month minimum of employment for full-time teenagers hired under this tax credit. That, at least, would prevent employers from firing newly-hired teenagers as soon as they came of age. Also, reduced labor costs resulting from the present freeze of the minimum wage as inflation continues to climb, together with the tax credit, will encourage employers to hire more workers.

CERTAINLY, this method of dealing with teenage unemployment seems better than others that have been considered during the past two decades. Introducing a sub-minimum wage for teenagers, as has been suggested, would not only displace low-wage adults (most of whom are women) but also would place at a disadvantage the youths who are currently eligible to receive the sub-minimum wage. Students and those who work in the retail service or educational sectors fall into this unlucky category. Another problem with a sub-minimum wage is that it could place 16 to 19-year olds into competition with their 14 and 15-year old siblings who now work at sub-minimum wage at a limited variety of jobs.

Since its inception in 1973, the Comprehensive Youth Employment Act (CETA) has provided jobs for disadvantaged youths. Yet participation in the program has not enhanced future work eligibility, because private employers apparently do not value experience from government-created jobs. At a cost significantly lower than CETA's $13,000 per full-time job, the tax credit program would help a teenager get his foot in the door of private-sector employment.

Instead, programs like CETA should be limited to the unemployable--high-school dropouts and graduates who are illiterate--and should stress remedial skills along with job training. Once these teenagers gain the skills necessary to enter the labor force, the tax credit attached to their hiring should get them the jobs they couldn't have gotten on the basis of experience from federal programs.

Tackling the high rate of teenage unemployment will help reduce unemployment as a whole; the more teenagers employed today, the fewer unemployed adults tomorow. A tax credit program such as the one the Administration is reportedly considering is a long-range solution to the problem one whose proven effectiveness and potential for increased success is worth the cost. Hopefully, if all goes according to plan, the only real loss in government revenue will result from the absence of unemployment benefits to tax.