Commentary | Budget Taxes and Public Investment

Senate bill no match for scale of jobs crisis

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Lawrence Mishel, president of the Economic Policy Institute, issued the following statement on the Senate jobs bill.

We need to create 11 million jobs to get back to the level of unemployment we had before the recession began. Yet the Senate jobs bill would create no more than a couple hundred thousand jobs.

It is a good thing that the Senate is now focusing on passing a jobs initiative, since the jobs crisis urgently demands action. Unemployment will be as high as it is now – or higher –  one year from now; two years from now, it will still be as high as 8%. That would mean that at the end of 2011, four years after the recession began, we will still have an unemployment rate higher than the highest unemployment at any point in either of the last two recessions. The Recovery Act in early 2009 did a lot to dig us out of the deep hole we were in, but further aggressive policy action is still needed to get us the rest of the way out of that hole.

Unfortunately, what the Senate is considering hardly qualifies as a good first step. The bipartisan bill from the Senate Finance Committee was accurately portrayed by Senator Jon Kyl, who said, according to Bloomberg News, that the package shouldn’t be described as jobs legislation because it’s “extending a bunch of tax policy and related items that we need to do.” For example, some $31 billion of the $85 billion package was for the research and development tax credit, something that was expected anyway and has very little to do with generating new jobs. Other provisions were essentially extending other tax breaks, again with no real job impact. This was a cruel pretense at a jobs initiative. 

Senator Harry Reid wisely abandoned that effort. However, what remains is an extremely small measure that does not even include the renewal of the unemployment and Cobra health care benefits that are about to expire. Nor does it address the loss of a million public and private sector jobs this summer and fall as state and local governments slash services to address their budget problems. 

The main job generation component is the $13 billion Schumer-Hatch jobs tax credit, which is small and poorly designed. This proposal is about a third the size of the Obama administration’s suggested jobs tax credit and about one-sixth the size of the proposal offered by the Economic Policy Institute. The actual credit of 6.2% is so small that it provides little incentive. It gives the credit to firms for any hires they make, so firms with natural turnover get a tax subsidy; in contrast, the administration and EPI proposals limit their credits to firms which actually add to their overall payrolls. Finally, by restricting the credit to hiring only those workers unemployed for sixty days or more, the Schumer-Hatch bill is essentially unenforceable—not all the unemployed receive unemployment insurance so their status is not possible to document. 

Timothy Bartik analyzed this proposal for EPI and concludes that it will create no more than 200,000 jobs.

This estimate (it would lower unemployment by just 0.1%) is a generous one since such a jobs tax credit can only be successful if there’s a robust growth in demand and employers are willing to advance the hiring they expect to do later. It is hard to see the economy as particularly ripe for a jobs tax credit. This is because there will be slow growth this year—perhaps 3%, half of what is needed and possible—and no boost to growth from policy in the form of major infrastructure spending, government job creation, relief to state and local governments, and so on.

The other provisions of Senator Reid’s bill could be helpful. They are reauthorization of the Transportation Act for the remainder of the year and providing funding stability by allowing the fund to keep the interest it earns. While this is simply a continuation of current policy, failure to reauthorize the transportation program would jeopardize tens of thousands of jobs.