Commentary | Jobs and Unemployment

House bill creates nearly three times more jobs than GOP version

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The Economic Policy Institute conducted a comparative analysis of the two competing stimulus bills in the House of Representatives: H.R. 1 as passed by the House on January 28th, and the Camp-Cantor stimulus (H. Amdt. 22), which functions as the House GOP alternative stimulus.  The results show that in each of the first three years-when the stimulus is most needed-the House bill creates significantly more jobs than the Camp-Cantor substitute bill.  The House bill produces 1.2 million jobs-about 30% more than the Camp-Cantor bill-by the end of the first year, 3.7 million jobs-nearly three times the jobs in the Camp-Cantor bill-by the end of the second year, and about 5 million jobs-about 3½ times the jobs-by the end of the third year.

The differences between the two bills’ job creation potential have to do both with size and composition.  The House bill is about twice the size of the Camp-Cantor alternative, thus pumping more money into the economy in the first three years of enactment.  The House bill is also composed of effective job-creating provisions, such as money to prevent states from making pro-cyclical cuts to their budget (such as laying off teachers, law enforcement, and social workers), investments into building safe and modern transportation infrastructure, and refundable tax credits.

By contrast, the Camp-Cantor bill removed the spending and heavily focused on tax cuts for businesses and higher-income households.  For example, it would spend $53 billion over the first three years to expand net operating loss carrybacks from two to five years, which essentially functions as a lump-sum transfer to businesses.  Overall, these provisions create fewer jobs than the House-passed bill for two reasons: 

Public Investment vs. Tax Cuts: A dollar spent on government activity (such as school construction) creates 33% more economic activity than a dollar in tax cuts, primarily because households will most likely save a portion of their tax cuts rather than spend them back into the economy.

Effective vs. Ineffective Tax Cuts: The Camp-Cantor bill also includes the types of tax cuts least effective at creating jobs.  Tax cuts for higher income households are more likely to be saved (simply resulting in reduced private debt and greater public debt), while those for lower income households are more likely to be spent.  Business tax cuts completely address the wrong problem: they promote supply expansion when the problem is a demand shortfall.  If the demand isn’t there, businesses won’t use their tax cuts to expand, no matter how much money is thrown at them.

With even the House bill falling short of filling the job gap over the next few years, the Camp-Cantor bill is analogous to using a Band-Aid to heal a gunshot wound.

Job Creation of H.R. 1 and Camp-Cantor Stimulus Bills, in thousands

 

Year 1

Year 2

Year 3

H.R. 1

1,179

3,655

4,985

Camp-Cantor

914

1,269

1,386

See more work by Ethan Pollack