South By North Strategies, Ltd.

Dell Closes Winston-Salem Plant

In a press release today, Dell, Inc. announced that it will be closing its computer assembly facility in Winston-Salem, NC. According to the company, 600 positions will be eliminated next month, and another 300 will be eliminated by early next year.

When the plant opened in 2005, it was the recipient of state and local tax subsidies valued at close to $300 million.

Housing Market Overview

From the latest issue of the Center for Economic and Policy Research’s Housing Market Monitor:

Whether or not the [first-time homebuyer tax]credit is extended, the outlook for the market in the near future is almost certain to darken. The number of mortgage delinquencies continues to rise. With the economy continuing to lose jobs and many homeowners having exhausted their savings and their unemployment benefits, there will certainly be more distressed sales in the future. In addition, it seems unlikely that interest rates will remain at the extraordinarily low levels that they have been at in recent months. We are approaching the end of the period in which the Fed has committed to buy mortgage-backed securities, so unless they extend their purchases, mortgage rates will almost certainly be rising in the next few months. In short, there are many factors suggesting that the housing market will weaken with more supply and weakened demand. There is really nothing pointing in the opposite direction.

A Tax Credit for Job Hiring?

A report in today’s edition of The New York Times discusses interest in adoptng a federal tax credit targeted at firms that create new jobs — an idea last tried in the 1970s. Reports the Times:

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 increased the size of their work force or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker’s salary ….

Under the proposal … the credit in the first year would equal 15.3 percent of the cost of adding an employee. In the second year, it would fall to about 10.2 percent.

For example, hiring a worker might cost a small business $50,000 annually. But with the tax credit, the cost would fall to $42,350 in the first year, and then be $44,900 the next year. After that, the cost would return to $50,000.

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Around the Dial

Economic and policy reports and media stories of interest on 10/6.

• The New York Times’ Bob Herbert on the urgency of addressing the unemployment crisis.
• Andrew Ross Sorkin chronicles Wall Street’s “near-death experience” in Vanity Fair.
• Science Progress analyzes the federal government’s role in promoting regional growth clusters.
• The Stash discusses how the recession is accelerating retirement decisions.

Creating Jobs by Aiding States

Last week’s alarming national employment report has caused federal leaders to consider additional measures to spark job creation. Options reportedly under discussion include extending unemployment insurance benefits, providing tax credits to business that add positions, allowing businesses to carry back operating losses over a longer time period, and expanding and extending a tax credit for first-time homebuyers.

Unfortunately, none of these measures actually will have much of an impact on job creation and with the crucial excpetion of extending unemployment insurance benefits, none will do much to stimulate the economy.

Consider the first-time homebuyers tax credit, which some advocates want to extend and expand. In its current form, the tax credit is not only expensive and  inefficient, but it also does nothing to reduce the the nation’ supply of excess housing units. Calculated Risk explains:

The so-called “first-time” homebuyer tax credit just moves people from renting to owning, and doesn’t reduce the overall number of excess housing units. As I’ve noted before, the tax credit policy will push the rental vacancy rate above 11% soon ….

The new home market is definitely in a depression, and will not recover until the excess housing inventory is reduced. However most of the tax credit was aimed at the existing home market – and existing home sales are at about a normal level (not depressed), although the mix is skewed toward the lower end and distressed sales (not a healthy market).

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