Senate Passes Jobs Bill; Tax Credit Will Pay Companies for the Wrong Thing in Many Cases

February 25, 2010

The U.S. Senate has passed a bill to pay companies that hire, calling it a jobs bill. The San Francisco Chronicle has a good Q&A on the provisions. During the run-up to the vote, most analysts liberal and conservative denounced the bill, saying it wouldn’t create new jobs for all the usual reasons:

  • Firms that claim the credit would have hired the person anyway, in which case the credit is just corporate welfare.
  • Firms may game the system by abolishing and re-creating jobs.
  • Temporary tax breaks can’t inspire an expensive long-term commitment like a new hire. Only a permanent rate cut can credibly claim to be such a powerful economic incentive, and even then, counting “jobs created” is hooey.

From our perspective, the bill’s only virtue is its small size. Even though it includes highway funds, small business tax write-offs in addition to the hiring credit, the estimated cost is only $15 billion. That’s about 98% smaller than last year’s stimulus, which was also designed to create jobs but has disappointed, as Republicans never tire of pointing out. Strenuous defenders of last year’s stimulus aren’t to be taken seriously when they assert that unemployment would now be 13% or even 15% if the stimulus bill hadn’t passed a year ago. One can never know alternative futures, but that’s absurd.

But the bill may not stay small, and there may be another, more expensive stimulus package coming soon. The $15 billion bill now goes to the House where the price tag is predicted to rise; and the Atlantic is reporting that Reid will soon introduce another stimulus bill that costs considerably more and whose provisions resemble last year’s stimulus package.

Rhetorically, the new jobs bill is part of Obama’s effort to replace the word “stimulus” with the word “jobs” even though they amount to the same thing: an effort to save or create jobs. The Obama White House had pushed tax credits for hiring as part of last year’s stimulus package, but Congress said it wouldn’t work and left it out.

Politically the jobs bill is an effort to get a win on something with Republican votes, and so far that’s working. Thirteen Republican senators voted for it.


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