Research Briefing

Budget Rehashes Failed Jimmy Carter Tax Credits While Imposing $2 Trillion In New Job-Killing Taxes

HOWARD GLECKMAN OF THE URBAN INSTITUTE ON OBAMA’S JOBS TAX CREDIT: “Some Bad Ideas Never Go Away … It’s Just Providing Incentives To Lots Of Companies That Probably Aren’t Going To Make It In The End Anyway.” (Catherine Rampell, “Support Is Building For A Tax Credit To Help Hiring, The New York Times, 10/6/09)

OBAMA’S JOBS TAX CREDIT JUST A FAILED JIMMY CARTER THROWBACK

In New Budget, Obama Claims His Tax Credit For Small Businesses Will Create Jobs.  “In his 2011 budget released Monday, Obama dedicated $100 billion to fund a jobs bill that would include tax cuts for small businesses … The small-business tax cut -- which was not included in the House bill -- would cost $33 billion and reward companies that hire new employees or increase salaries for existing workers this year.” (Kim Geiger, “Congress' Jobs Bill Vs. The White House Plan,” The Los Angeles Times, 2/1/10)

But Economist David Rosenberg Says Obama’s Jobs Plan Out Of “Jimmy Carter's Economic Playbook.” “As for this new job-focused fiscal plan out of Washington, there's really nothing quite like using the quick fixes from Jimmy Carter's economic playbook in the late 1970s -- after all, they worked so well. We have a record of over 6 million Americans who have been unemployed and looking for work without success for at least six months and another 9 million working part-time because they have no choice, and over 6 folks who are jobless competing for every job opening out there and somehow a $33 billion tax credit is the solution to the jobs crisis.” (David Rosenberg, “Breakfast With Dave,” Gluskin Sheff, 2/1/10)

Jimmy Carter’s Tax Credit In 1977-78 Did Not Result In Permanent Jobs. “States have dabbled with similar tax credits in recent years, with mixed results. The federal government last tried this measure in 1977-78 …. The creation of one out of three jobs that was awarded the credit then was attributed directly to the policy. But the permanence of those jobs was less clear, and some dispute how many of those positions would have been created eventually anyway.” (Catherine Rampell, “Support Is Building For A Tax Credit To Help Hiring, The New York Times, 10/6/09)

• And It Did Not Prevent Rapid Unemployment Increase Of Nearly 40 Percent Over Next Two Years. (U.S. Bureau Of Labor Statistics, www.bls.gov, Accessed 2/2/10)

Carter’s Deputy Assistant Treasury Secretary For Tax Analysis Concluded That “The Impact Of The Credit On Jobs Was Slight.” “The impact of the credit on jobs was slight. In many firms those who make hiring decisions did not understandd the firm's tax status. In addition, some time passes between the employment decision and the determination of eligibility for the credit.” (Emil Sunley, “A Tax Preference Is Born: A Legislative History Of The New Jobs Tax Credit,” The Economics Of Taxation By Henry J. Aaron and Michael J. Boskin, The Brookings Institution, 1980, Page 408)

IDEA WAS REJECTED BY DEMS LAST YEAR FOR BEING “RIPE FOR ABUSE AND DIFFICULT TO ADMINISTER”

Congressional Democrats Forced Obama To Dump This Idea Last Year Because It Would Be “Ripe For Abuse And Difficult To Administer.” “Stronger opposition came from Democrats, who dismissed the $3,000 credit to employers for every job created or saved as ripe for abuse and difficult to administer. When no champion for the proposal came forward, the president-elect decided to sideline the incentive.” (Shailagh Murray, “Obama Shelves Jobs-Credit Proposal,” The Washington Post, 1/13/09)

• Tax Credit Would Encourage Fraudulent Employment Reporting. “The New York Times reports that the some of our leaders in DC are considering a tax credit for companies that create new jobs … Sounds good at first. The problem is, how do you define a marginal job? You cannot simply say ‘new hires.’ In that case, company A fires Peter and hires Paul. Company B fires Paul and hires Peter. That kind of employment churn is, presumably, not what we are trying to encourage.” (Greg Mankiw, “A Tax Credit for New Hiring?,” Greg Mankiw’s Blog, 10/7/09)

Howard Gleckman Of The Urban Institute Says “Refundable Tax Credits For Hiring New Workers Promise To Be An Administrative Nightmare And Won’t Create Many New Jobs.” (Howard Gleckman, “Obama’s $300 Billion Tax Cut: Lots Of Buck, Not Much Bang,” Tax Policy Center, 1/5/09)

AND HIS $2.8 TRILLION IN NEW TAXES WILL KILL JOBS

Obama’s Budget Raises Taxes By $2 Trillion. “President Barack Obama's $3.8 trillion budget for fiscal 2011 raises $2 trillion in taxes, cuts spending on programs with considerable political support and still leaves the nation with $8.5 trillion in additional debt over the next decade.” (Jonathan Weisman, “White House Proposes $3.8 Trillion Budget,” The Wall Street Journal, 2/1/10)

• Including $1.4 Trillion In Taxes On Small Businesses. “In all, Obama would increase taxes on some businesses … by a total of about $1.4 trillion over the next decade…” (Stephen Ohlemacher, “Obama Budget Would Impose Host Of Tax Increases, The Associated Press, 2/1/10)

And Obama’s $2 Trillion In New Taxes Does Not Include His $846 Billion National Energy Tax From His Cap-And-Trade Scheme. “The White House on Monday dropped prospects for revenue from a climate cap-and-trade system opposed by many lawmakers, but its proposed budget still called for a ‘market-based’ policy to fight climate change.” (Jeff Mason and Timothy Gardnery, “UPDATE 5-Obama Budget Drops Revenue Outlook For Carbon Trade,” Reuters, 2/1/10; Congressional Budget Office, H.R. 2454, American Clean Energy And Security Act Of 2009,” 6/5/09)

• “Cap-And-Trade” Scheme Could Mean Nearly 1 Million Jobs Lost Per Year. “Overall, a cap-and-trade system that reduces annual GDP by 0.34 percent per year can be expected to reduce U.S. employment by roughly 964,900 jobs per year, reduce household earnings by $37.8 billion, and reduce total U.S. economic output by $136.1 billion.” (Andrew Chamberlain, “Who Pays For Climate Policy?,” Tax Foundation, 3/09)