Wednesday, April 19, 2006

Tax Credits for Hiring Felons? Delaware Innovation

An article in yesterday’s BNA Daily Tax Report covers a recent legislative development in Delaware offering employers an interesting hiring incentive. If you hire a person convicted of a nonviolent felon for a job paying more than $15,600 per year, and you retain that employee for one year, you get a tax credit of $10,000. The credit can be claimed only once per felon – thus, no moving from job to job and creating largess for the employer.

This sounds rather odd, as it effectively distorts the hiring market in favor of those with a felony conviction. In effect, the state will pick up $10,000 of the salary cost for the employer, making the net cost $5600 to the employer. However, the idea here is to promote employment and decrease recidivism. It may cost the state a lot more than $10,000 if the person decides to return to a life of nonviolent crime.

But it seems to me that this incentive provision may have flaws. First, if the cost reduction goal is important, why not include violent felons? It seems that employment prospects for these people would be lower, and the risk of recidivism here would thus be greater.

Second, the “cliff” nature of the credit could create some interesting problems. Suppose that the felon has worked 11 months. Keep in mind he is in a low-paying job, earning maybe $7.80 per hour. (In our part of the country, fast food restaurants pay close to this wage.) The employee says he has found another job, and would like to move on, unless he gets a raise. How much would the employer pay? The employer is about to lose $10,000 in tax credits.

I guess the assumption here is that the employee would prefer the long-term prospects of employment rather than change jobs. I’m not sure that would be the case in low-wage work. Credits that induce distortions in hiring behaviors may, in fact, induce other distortions.

1 comment:

Anonymous said...

Check out Iowa's ex-offender tax deduction, which can be taken in addition to the targeted jobs tax credit.