In his convention speech last night, former President Bill Clinton claimed that, “We could have done better, but last year the Republicans blocked the President’s job plan, costing the economy more than a million new jobs.” According to Glenn Kessler of the Washington Post’s Fact Checker, this claim was “merely a fuzzy and optimistic projection.” This is flat-wrong, and the evidence cited by Kessler to support his claim is far “fuzzier” than the counterfactual impact of the American Jobs Act (AJA).
The problem revolves around the baseline against which policy changes are scored. With the benefit of hindsight, we know pretty well how many jobs would have been created relative to what actually happened in terms of 2012 policy changes. The article linked to by Kessler, and on which he hangs his criticism, is full of quotes from forecasters saying that the AJA wouldn’t add to jobs because, “Some of this is just extending support that was already in place,” and implicitly would happen anyway. We now know that this is wrong—much of what was called for in the AJA turns out not to have supported the economy in 2012 (because it was never passed). And if it had been, the effects would have been … to add over a million jobs to the economy. Wonky details follow.
In Sept. 2011, President Obama proposed the AJA, a $447 billion package of infrastructure investments, aid to state governments, emergency unemployment benefits, and tax cuts for households and business—most of which was front-loaded to calendar year 2012. As a one-year extension of the emergency unemployment compensation (EUC) program and two-percentage point employee-side payroll tax cut (enacted in the Dec. 2010 Bush tax cut deal) approached expiration at the end of 2011, Congress enacted a two-month continuation for the beginning of 2012. In February, President Obama proposed a slightly tweaked version of the AJA in his budget request for fiscal year 2013. Congress instead continued the payroll tax cut for the remainder of 2012 and partially extended the EUC program, decreasing the maximum duration of long-term unemployment insurance from 99 to 73 weeks, at a lower budgetary cost and to a less stimulative effect.
Had Congress enacted the full AJA, we project real GDP growth for 2012 would have been 1.4 percentage points higher, bringing growth to 3.4 percent relative to the Congressional Budget Office’s baseline forecast. Nonfarm payroll employment would be more than 1.6 million jobs higher by the end of 2012, and as a result, the unemployment rate would be 0.5 to 0.7 percentage points lower.
- The president initially proposed $179 billion for a 3.1 percentage-point reduction employee-side payroll tax cut, whereas Congress enacted $114 billion to continue the smaller 2 percentage-point payroll tax cut. Expanding this payroll tax cut would have supported an extra 620,000 jobs by the end of 2012.1
- The president had initially proposed $48 billion for full continuation of EUC, whereas Congress enacted $38 billion for the scaled-back extension. Full EUC continuation would have supported an additional 106,000 jobs relative to current law.1
- An employer-side hiring credit would have supported 246,000 additional jobs.
- Aid to state governments for rehiring teachers and first responders would have boosted employment by an additional 210,000 jobs.
- School modernization and repairs would have supported 182,000 additional jobs.
- Infrastructure investments would have supported 114,000 additional jobs.
- Workforce training programs would have supported 65,000 additional jobs.
- Other tax cuts would have boosted employment by 114,000 jobs.
- Other spending provisions would have boosted employment by 30,000 jobs.
- In total, full passage of the American Jobs Act would have increased employment by more than 1.6 million jobs, relative to the partial EUC continuation and payroll tax cut extension that Congress enacted.
In dismissing Clinton’s 1 million jobs figure, Kessler cited a median Bloomberg forecast of financial economists. But this is inherently problematic, because every forecaster operates from a different baseline on what constitutes current fiscal policy; for example, judging whether the existing payroll tax cut and emergency unemployment benefits would be continued (the Bloomberg forecast at least partially ignored jobs lost from scheduled fiscal restraint). And the same Bloomberg article cited a JP Morgan forecast that spending cuts (ratcheted up by the 2011 debt ceiling deal) and expiration of those two policies would cut GDP by 1.7 percent in 2012. As a counterfactual, Bloomberg’s median forecast for a package twice as large as the expiring EUC and payroll tax provisions does not square with JP Morgan’s credible estimate because of this fiscal restraint built into baseline forecasts.
Clinton’s claim is also supported by Moody’s Analytics chief economist Mark Zandi’s analysis of the AJA from Sept. 2011: “If fully implemented, the Obama jobs plan would increase real GDP growth in 2012 by 2 percentage points, add 1.9 million jobs, and reduce the unemployment rate by a full percentage point, compared with current fiscal policy.” (At the time, Moody’s Analytics baseline view was that the payroll tax cut would be extended for 2012, but not the EUC program.) Zandi estimated that expanding the employee side payroll tax would generate 750,000 jobs, the employer-side payroll tax cut would generate 300,000 jobs, infrastructure spending would add 400,000 jobs, and aid to state and local government would add 135,000. These provisions alone would have boosted employment by more than 1 million jobs relative to congressional action. Zandi’s projections are generally consistent with our estimates, with budgetary lag assumptions explaining much of the variation for 2012.
1. We use the Sept. 2011 proposal for the budgetary cost of EUC and the employee-side payroll tax cut, the two provisions Congress partially acted on between proposal of the AJA and the president’s budget request for fiscal 2013. All other budgetary costs are taken from the president’s budget.