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While President Obama travels the country raising campaign money and trying to sell his $447 billion (stimulus II) jobs plan, the academic literature says his proposals will have little, if any, impact on spurring job creation or aggregate demand.
In fact, his temporary tax measures would be offset by $460 billion in tax increases. The whole package undoubtedly would do more harm than good, as explained after research by the non-partisan Tax Foundation.
“Pass this bill! Pass this bill! Pass this bill!” Obama ordered Congress when he spoke to the recent Joint Session. While he says “pass this bill,” he’s passing the buck. “No games. No politics, No delays,” he declared.
The main elements of Obama’s American Jobs Act (AJA) include:
1. A 50 percent cut in employer payroll taxes for 98 percent of businesses and a bonus payroll tax cut for new jobs. Expected revenue loss: $65 billion.
2. A “returning heroes” hiring tax credit for veterans. The revenue loss has not yet been scored by the Congressional Budget Office.
3. A $4,000 tax credit for employers who hire long-term unemployed people. Expected revenue loss: $8 billion.
4. A consumer demand incentive, namely, a 50 percent cut in payroll taxes for more than 150 million workers in 2012. Anticipated revenue loss: $176 billion.
5. A business investment incentive, namely, an extension of the one-year allowance of 100 percent expensing allowance of qualified business deductions. Expected revenue loss: $5 billion.
Some of the act sounds good on the surface. But a review of “economic research says ‘jobs’ incentives tend to be ineffective in spurring new hiring,” according to an examination written by David S. Logan, Tax Foundation economist, formerly at the Brookings Institution. The business expensing provision “will only have a modest impact on economic growth because of its temporary nature,” Logan wrote.
The challenge is to determine “new” hiring from hiring that would have occurred without the incentives. One economic study found that at least 70 percent of tax credits given to employers are payment for workers who would have been hired anyway—without subsidies. Two other studies, Logan said, found that job creation tax credits do little to change behavior. One study found these policies are “hardly utilized when measured against the actual…hires that take place.” Another said more candidly: “Employers are happy to claim such credits,” but are “reluctant to change their behavior in response.”
When Obama strode into the Oval Office in 2009, the official unemployment rate was 7.7 percent with 11.9 million people saying they were without jobs and looking for work. Joblessness reached a peak of 10.6 percent in January 2010. Now unemployment is still over 9 percent with about 14 million out of jobs, according to the Bureau of Labor Statistics.
Isn’t the American Jobs Act an historic case of frantically trying to catch up with reality? It’s as if, finally, someone rudely shook Barack awake.
The purported jobs plan comes at a time of great unemployment among some of Obama’s most star-struck supporters, with blacks at 16.7 percent and Hispanics at 11.3 percent. Youth unemployment is also tremendously high.
Because unemployment has been considered the nation’s overriding problem for close to two years, the introduction of Obama’s American Jobs Act is not even better late than never.
“Businesses must weigh the short-term benefits of any tax incentives against the long-term costs of hiring a new employee,” economist Logan points out. The reason? Let’s say an employer is considering hiring an entry-level employee at $25,000. Depending on the employee, the business could be eligible under the AJA for $4,000 if he’s a non-veteran, $5,600 if he’s a veteran and $9,600 if he’s a battle-wounded vet.
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