Authors: Aaron Klein,Brenda J. Elliott
We can see the results of implementing flawed “stimulus” plans in the name of job creationâespecially in a period of high unemployment, excessive spending, and an out-of-control national debt. Yet another Obama plan would provide a $4,000 tax credit to businesses that hire workers who have been unemployed for at least six months. The Demos officials Callahan and Draut had one reservation, but it is not that the president would be doubling down on already ruinous policies. “This incentive could be useful,” they
wrote, “but care must be taken to ensure that employers are not pocketing funds for hires they would have made anyway.”
Apparently untroubling to them would be the price tag of such a program, not to mention the wasteful expansion of government bureaucracy required to monitor it.
On the other hand, Callahan and Draut were unenthusiastic about an Obama proposal for “new government spending that ties unemployment insurance to job training.” This idea is modeled after a Georgia program, which hands unemployment benefits over to employersâin the form of a stipendâwho have hired the unemployed as trainees. But the Georgia results were dismal. Only 16.4 percent of workers who participated between 2003 and 2010 actually got hired by the “company where they were placed, and only 24 percent got jobs at all,” according to the Georgia Department of Labor. And again, as with the above-mentioned tax credit plan, monitoring a “U.S. Works” program would require expanding the bureaucracy, an unfunded expense America can ill afford.
One Obama recommendationâdeemed the “costliest and most ambitious element” of Obama's planâdid meet with the Demos officials' full approval: the extension of the payroll tax holiday. A payroll tax reduction of 2 percent for all workers in 2011, they wrote, “now delivers benefits to 121 million workers averaging about $934.”
But the Center for Budget and Policy Priorities wanted Obama to go farther. CBPP agreed that the expiration of the tax holiday, at the end of December 2011, would be a “self-inflicted wound to the economy” and “shrink the paychecks of nearly all Americans.” Therefore, the CBPP wrote, Obama should not only propose to extend the tax cut for another year but also permanently expand it by cutting it in half for “all workers and employers up to the first $5 million of payroll. (The holiday rate would be 3.1 percent for employees and 3.1 percent for employers, as opposed to the normal 6.2 percent for each or the existing holiday rate of 4.2 percent just for workers.)” In addition, employers who added to their workforce or increased wages would be exempt from having to pay any payroll tax at all.
(The CBPP, it should be noted, is a George Sorosâfunded, public policy think tank. Jared Bernstein, a CBPP senior fellow, formerly worked at the Economic Policy Institute. In December 2008, Bernstein became chief economist and economic policy adviser to Vice President Biden.
In one of the more honest statements in their report, Demos' Callahan and Draut touted the payroll tax holiday for its “potential political viability.” They added that Demos senior fellow and Cornell economist Robert Frank “advocated suspending this tax altogether for workers, which would increase most workers' paychecks by 4.2 percent immediately.” But Frank wanted “the 6.2 percent employer side of this levy [to] be left in place for existing workers while there should be a full holiday for the tax on all new hires until the economy recovers from the current downturn.” Another political windfall cited by Callahan and Draut: University of Delaware economist Larry Seidman “estimated that suspending the employee's share of the payroll tax would cause the national unemployment rate to decline by a full percentage point by the end of 2012 relative to what it would have been otherwise.”
For Obama's reelection campaign, just in time!
The Demos officials note another, more far-reaching proposal, from 2010, by the bipartisan task force the president and Congress had created to develop a broad deficit-reduction plan (the Domenici-Rivlin Commission of the Bipartisan Policy Center). It “would [have suspended] the entire payroll tax for both workers and employers for one yearâa move the commission estimated would create between 2.5 million and 7 million jobs.” They also “proposed reimbursing the Social Security Trust Fund for lost revenues to ensure its long term solvency.”
A more radical perspective on payroll-tax-reduction-as-stimulus came from the Institute for Policy Studies. IPS is by far the most left-leaning progressive think tank in America today. The IPS has a long record of anti-capitalism, not to mention support for, and involvement with, Communist, Marxist, and anti-American causes around the world.
Putting more money in the hands of those who already have jobs so they can buy more Chinese imports does very little to put Americans to work in good jobs that pay good wages.
So wrote John Cavanagh and David Korten for the IPS in November 2011.
They were optimistic about the current political environment: “Democrats are more likely to see a need for appropriate regulation, a progressive tax system, and government stimulus spending.”
And they were anxious to get beyond the traditional American formula of economic expansion coupled to a strong work ethic: “Beyond just creating jobs, we need to help people shift from jobs that are harmful or simply unproductive to jobs that address currently unmet needs.”
In other words, Americans need the benevolent guiding hand of Big Brother to understand the fruitlessness of continuing in “harmful or simply unproductive” jobs that only meet their basic needs. In fact, Cavanagh and Korten epitomize the progressive ideal of the nanny state that wants to shape, direct, and control every aspect of Americans' lives:
Examples include the transition from jobs in military industries to jobs in environmental remediation and elder care, and from jobs guarding prisons to jobs rehabilitating ex-offenders. We need to shift the resources we're squandering marketing junk food to children to teaching them, from mining coal to installing and maintaining solar panels, and from building an ever-increasing number of automobiles to expanding public transportation. More broadly, we need to shift from mining to recycling, from growing urban sprawl to retrofitting cities for sustainable living, and from financial speculation to the local financing of productive enterprises.
The White House estimate of its proposed payroll tax holiday was also attacked by Demos. Obama's payroll tax cut would benefit 160 million workers and raise household incomes by $1,500 the following year for an average family. But Demos objected that the measure would cause $240 billion in lost federal tax revenue. Additionally, they complained that a payroll tax cut is “not as effective as direct government spending in stimulating economic activity.” Moreover, they did not believe that tax cuts for all workers would be as effective as tax cuts “more sharply focused on low-income Americans.” Still, they argued, a payroll tax cut is “highly effective at stimulating growth
because it increases the size of ordinary people's paychecks and most of this money gets immediately spent.”
Here Demos is promoting the reinstatement of a tax credit called Making Work Pay. The MWP tax credit was included in the $787 billion 2009 “stimulus” bill. If the MWP credit were reinstated, estimates from the Economic Policy Institute predict it would “boost employment by 409,000 jobs in fiscal 2012 and 532,000 jobs in fiscal 2013.”
During the years 2009 and 2010, MWP “provided a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns,” according to the IRS.
However, the tax credit was replaced in 2011 with a payroll tax cut, which “cut taxes for higher-income workers, raised taxes for some low-wage workers, and nearly doubled the amount of lost tax revenue,” according to a former official with the Congressional Budget Office.
Reinstatement of the MWP tax credit is now included in a major piece of progressive legislation called the Act for the 99%. The name is a short form of the Restore the American Dream for the 99% Act. The Act for the 99% is a major initiative of the Congressional Progressive Caucus, introduced on December 13, 2011. The reference to “99%” comes from a political slogan of the Occupy Wall Street movementâ
We Are the 99%â
after their first New York City protest on September 17, 2011.
OWS protesters claimed the slogan called attention to the fact that “marchers [were] not part of the one percent of Americans who hold a vast portion of the nation's wealth.”
Progressive Caucus co-chairs, Reps. Keith Ellison (D-MN) and RaÃºl Grijalva (D-CA), claimed that the proposal was a “package of near-term job-creation measures and budgetary policy reforms that would meaningfully boost employment and improve the long-term fiscal outlook.”
But in reality, the CPC created the Act for the 99% by cobbling together a bundle of dead-end legislation. Each bill had failed to make its way out of at least one committee or subcommittee. The danger is that this legislation, like so many others, would become a central initiative of a second Obama term.
In their Capitol Hill press conference, Ellison and Grijalva claimed the bill would not only create 5 million jobs in two years but it would also save more than $2 trillion over ten years.
But the math does not add up, even according to progressive experts. Rutgers Professor Philip L. Harvey, writing
for Demos, wondered in 2011 what it would take to bring “unemployment back down to 5 percent and consumer demand back up to pre-recession levels?” If the 2009 stimulus bill's $787 billion price tag had only bought 3â4 million jobs, how much would it take to “double that amount over again to create the 6â8 million additional jobs needed”?
The implication of Harvey's question is:
an additional expenditure of nearly $1.6 trillion.
Viewed another way, in June 2011, over 14 million people were reported as unemployed. The U.S. economy had lost an officially reported 7 million jobs, “wiping out every job gained since 2000.” Real job losses were said to be closer to 10.5 million, with an estimated 3 million people who have quit looking for work.
Plus, new numbers for the “Obama Jobs Gap”âfar worse than those from less than a year earlierâwere revealed in early April 2012, by the U.S. Bureau of Labor Statistics: 15 million missing jobs. Just to catch up, the jobs gap would require 14.8 million net jobs “to restore the ratio of unemployed people to [the] total population”âand just to return to 2007 levels, before the Great Recession.
So the only other wayâbesides a new $1.6 trillion “double stimulus”âthat the Progressive Caucus's plan could create 5 million jobs is if they are government jobs, paid for using taxpayer and borrowed money. Where is the saving? How can the progressives' plan possibly close the jobs gap?
The Center for American Progress took a less-detailed approach to jobs creation. A quick reminder that CAP has been one of the key organizationsâalong with other progressive groupsâin crafting legislation for the Obama administration. CAP's January 2012 offeringâ
20 Ideas for Job Creationâ
is based on its December 2009 report,
Meeting the Jobs Challenge
In the more recent publication, CAP pushes several items having nothing to do with “jobs created or saved;” for example: CAP proposes the “extension of emergency unemployment benefits to [more than 700,000] long-term unemployed workers” and the “expansion of the payroll tax cut for employees and [extension of] it to employers through 2012.” Somehow CAP rationalizes these measures as saving more than 1 million jobs. Then
CAP rationalizes protecting 247,000 National Park Service jobs from “budget cuts, corporate interests, and antigovernment rhetoric” is jobs creation. CAP's plan also calls for rejection of a “federal proposal to mandate employer use of the E-Verify eligibility verification system”âas of now a voluntary program to verify the citizenship or legal residence eligibility of potential private sector employeesâin order to protect 770,000 American jobs.
The pure fiction of “jobs created or saved” was spelled out by Caroline Baum, a columnist for Bloomberg News (October 2009).
According to the Obama administration's own reporting (at recovery.gov), between February 17, 2009âwhen the president signed the $787 billion “stimulus” billâand October 27, the date of Baum's report, a grand total of 30,383 jobs had been “created or saved.”
Baum cited the chief economist at the National Federation of Independent Business, Bill Dunkelberg, who called government job creation an oxymoron. “It is only by depriving the private sector of funds that government can hire or subsidize hiring,” Baum pointed out. And when, on October 22, Obama's former chief economic adviser, Christina Romer, testified before Congress's Joint Economic Committee, the impact of the stimulus bill was, as Baum put it,
What was most puzzling about Romer's Oct. 22 testimony was her comment on the waning effect of fiscal stimulus.
“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”
What Baum and Romer did not mention was that the economy lost 216,000 jobs in the month of August 2009 (though a loss of 60,000 fewer than the month prior). National Economic Council director Larry Summers admitted in September 2009 that unemployment was exceptionally high and would, “by all forecasts, remain unacceptably high for a number of years.” The national unemployment rate was at 9.7 percent, a twenty-six year high. It was estimated that 6.9 million jobs had been lost in the recession, “which economists call the worst since the Great Depression.”