for the wealthy is like "trying to help the sparrows by feeding the horses". There's a much more direct and ingenious way to
(1) boost consumer demand,
(2) accelerate job growth, and
(3) give tax relief to job-creating small business owners.
Republicans who made "WHERE ARE THE JOBS, MR. PRESIDENT?" their mantra during a very successful midterm election campaign propose to borrow $70 billion a year for ten years to extend Bush-era income tax cuts for income above $250,000 a year, giving an average $100,000 a year to each of the top 2 percent of income tax filers, over and above the thousands anyone who had exactly $250k income would get. But David Cay Johnston of the NY Times and many others have pointed out that true job-creating small business owners are just a tiny fraction even of Subchapter S corporations and other Schedule C/E income tax filers.
A much more direct and ingenious way to accomplish all three goals listed above is to spend an estimated $6,000 per full-time equivalent job on PAYROLL TAX REBATES ONLY for small businesses who expand their payroll spending above past levels (see the second snippet below).
Bearish NYU economist Nouriel Roubini proposes substituting such payroll tax cuts for the part of Bush-era tax breaks Democrats don't like (see the first snippet below).
Economist John Bishop of Cornell University has estimated that an ingenious 15 percent payroll tax cut targeted ONLY at ACTUAL SMALL BUSINESSES WHO RAISE WAGES OR HIRE NEW EMPLOYEES would cost the Treasury $6,000 per full-time-equivalent job (see the second snippet below). $70 billion a year in direct government payments ONLY to small-busines owners who spend $70 billion / 0.15 = $467 billion of their own funds on raises for existing employees and net new hires would pump $467 billion in new consumer demand and millions of new jobs into the economy in exchange for the same amount of money Republicans propose to squander in scattershot fashion primarily on tax breaks for coupon-clippers and medical-legal professionals who hire NO ONE and give raises to NOBODY.
A similar measure called the "New Jobs Tax Credit" and enacted into law in 1977 has been praised in peer-reviewd economic journals.
IMO, President Obama should take midterm election losses as a mandate to use the most cost-effective fiscal measures to boost employment IMMEDIATELY. Some economists have argued that the "largest middle class tax cut in history", a general payroll tax measure, was not targeted sharply enough on job-creating businesses and on consumer demand. But just letting those tax cuts expire while borrowing $700 billion for income tax cuts for the wealthy surely would be even LESS effective in boosting employment than retargeting say $140 billion in payroll tax cuts to small business job creators over two years.
IMO, Democrats would be COMPLETELY justified by Tuesday's message from voters in using RECONCILIATION if possible or other emergency legislation to pass extension of employment-boosting middle class payroll tax cuts, along with extension of income tax cuts for incomes below $250k, during the lame-duck session that begins in ten days.
This is the advice I would give President Obama, Nancy Pelosi, and Harry Reid if I had five minutes of their time.
WHAT'S YOUR OPINION?
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From
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/16/AR2010091605846_pf.html :
"WHAT AMERICA NEEDS IS A PAYROLL TAX CUT
By Nouriel Roubini. Friday, September 17, 2010; A17
... In the midst of an election with crucial implications for its ability to govern, can the Obama administration reduce the likelihood of a 'double dip'? The administration knows that it needs to fashion a revenue-neutral fiscal stimulus that increases labor demand and consumption. Its proposal to make permanent a research and development tax credit that dates to the 1980s, and then to enact a temporary investment tax credit allowing firms to write down capital investments at 100 percent of cost, are welcome -- but too modest a cure for what ails the economy.
A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years). Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. THAT HAS THE PROBLEM BACKWARD. ... To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do. President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. ...
Proportion is critical in designing the payroll tax cuts. Small and medium-size enterprises have had it rough the past three years. They are scrambling for operating capital as banks hold reserves tightly, and they face higher borrowing costs than large corporations when they do find willing lenders. To maximize the incentives for private-sector hiring, there should be sharper reductions to the payroll taxes paid by employers than for those paid by employees. ... This will counter the argument that the higher income taxes funding these payroll tax cuts will hurt the wealthy and small businesses (many of which are run by those same high-income individuals) and their willingness to hire. Moreover, any cut in the payroll tax reduces the costs of operation and labor for all businesses. ...Low-income workers have historically shown a much higher propensity to consume when given extra money, so the payroll tax cut should be designed to provide a larger-percentage break to those on the low end of the income scale compared with the upper middle class. ...
Nouriel Roubini, chairman of Roubini Global Economics and a professor at New York University's Stern School of Business, is the author of 'Crisis Economics: A Crash Course in the Future of Finance.'"
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From
http://economix.blogs.nytimes.com/2009/11/19/the-case-for-a-job-creation-tax-credit/The Case for a Job-Creation Tax Credit
By JOHN H. BISHOP, Today's Economist; November 19, 2009, 3:57 pm
"John H. Bishop, a professor at Cornell University's Industrial and Labor Relations School, was co-author of a recent proposal on temporary job-creation tax credit published by the Economic Policy Institute.
Last week, President Obama announced that he was convening a jobs summit meeting, where policy makers would discuss how to reduce the country's high unemployment rate. One idea that has received attention lately--and which I heartily support--is a job-creation tax credit, which would make it cheaper for employers to hire new workers. ... The federal government has not tried this kind of policy since the 1970s. But the record of that policy gives hope that a temporary tax credit could help solve our unemployment problems today.
Here's how the credit could work, at least according to the proposal I wrote with Timothy Bartik at the Upjohn Institute: Employers would have to expand their payrolls on net to qualify for the credit, in order to prevent companies from simply firing and rehiring people. They would then receive a 15 percent rebate on any increase in their 2010 wage bill over their 2009 level. Firms would also receive a 10 percent rebate for the increase of their 2011 wage bill over the 2009 wage bill.
Based on Daniel Hamermesh's thorough review of econometric research on labor demand, Dr. Bartik and I have estimated that this temporary credit would increase employment by 2.8 million by the end of 2010. We also estimate that it would cost the federal government less than $6,000 per full-time equivalent job. Assuming these numbers are right, they make the policy an extremely cheap, efficient way to bolster the job market, especially relative to some other proposals, like public works projects.
The credit accomplishes so much so quickly because it enables the private sector to figure out which jobs make sense for the long run. Crucial decisions about whom to hire and for what kind of work are not made directly by the government. Rather, they are radically decentralized to the 6.5 million employers who would still pay 85 percent of the cost of taking on a new worker; who select, train and supervise the new hires; and whose vision defines the purpose of their firm's expansion. A similar two-year temporary credit--called the New Jobs Tax Credit--was established early in 1977, and studies have found it successful."
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