Green Room

Stimulus2 passes the Senate

posted at 11:22 am on March 17, 2010 by

The $38 billion plan passed with a few GOP votes.

Companies that hire unemployed workers will get a temporary payroll tax holiday under a bill that easily won final congressional approval Wednesday.

The bipartisan 68-29 vote in the Senate sends the legislation to the White House, where President Barack Obama has promised to sign it into law.

It will be the first of several election-year jobs bills promised by Democrats to be enacted into law, though there’s plenty of skepticism that the measure will do much to actually create jobs. Optimistic estimates predict the tax break could generate perhaps 250,000 jobs through the end of the year, but that would be just a tiny fraction of the 8.4 million jobs lost since the start of the recession.

So if you reduce taxes on payrolls you increase hiring, the Democrats are figuring out. If you increase taxes on proprietors who hire those workers, what happens then?

The bill contains the usual money for the road construction industry that everyone thinks will help stimulate jobs. We’ve been through this before.

The bill which passed Wednesday contains about $18 billion in tax breaks and a $20 billion infusion of cash into highway and transit programs. Among other things, it exempts businesses that hire the unemployed from paying the 6.2 percent Social Security payroll tax through December and gives employers an additional $1,000 credit if new workers stay on the job a full year. Taxpayers will have to reimburse Social Security for the lost revenue.

Italics mine, reminding you that we already have Social Security dipping into its reserves to pay benefits. So notice this, please: the money that pays for part of this $18 billion in tax breaks is in essence an off-budget decrease. There’s a promise that later on, some tax money (presumably from some revenues other than Social Security contributions, unless they raise the SS tax rate) will be put back in the trust fund to be paid later. I assume the $1000 credit has to go on-budget.

How effective will this be? CBO has already commented on this in a letter to Sen. Casey:

CBO estimated that reducing payroll taxes for firms that increased their payrolls would raise output (gross domestic product, or GDP) by a total of $0.40 to $1.30 between 2010 and 2015 for each dollar of budgetary cost. CBO also estimated that the policy would add 8 to 18 cumulative years of full-time-equivalent employment in 2010 and 2011 per million dollars of total budgetary cost. Thus, the cost of increasing employment by one full-time person for one year in 2010 and 2011 would probably be between $56,000 and $125,000. Although such a policy would have economic benefits in the short run, it would also add to already large projected budget deficits. Unless offsetting actions were taken to reverse the accumulation of additional government debt, future incomes would tend to be lower than they otherwise would have been.

I don’t know if they assumed the Social Security reduction was part of budgetary cost or not. But that 8-18 job-years number per million dollars spent is the one that should catch your eye. As the bill looks to spend $18 billion, the net gain from the tax cut is 144,000 to 324,000 jobs in the short run. In a normally growing economy, that is growth of about ten weeks. The $20 billion in highway spending would add more, but that is temporary. But the drag of the additional deficit and the attendant additional debt service, says CBO, will pull down future GDP and family incomes.

The Administration will of course sign this bill. Larger bills are caught in the House’s wrangling over health care and over concerns of how to pay for them. Remember, if they push too much additional debt too soon they might have to vote to increase the debt limit before the election. That last part should be a good thing. Perhaps at last the Democrats in the Congress have found a debt level that embarrasses even them. At least temporarily.

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So if you reduce taxes on payrolls you increase hiring, the Democrats are figuring out.

No, not really. If it increases hiring at all, it will simply push a few over-stressed businesses across the line and they’ll hire someone to reduce the workload of current employees.

If you reduce taxes across the board, THAT increases hiring, because it first increases buying power.

Daggett on March 17, 2010 at 11:50 AM

Who needs math, anyway?

Here we go, merrily spending our way down the rabbit hole toilet.

hillbillyjim on March 17, 2010 at 2:33 PM

The $38 billion plan passed with a few GOP votes.

I’m sorry – but that statement is intellectually dishonest. Eleven Republican Senators voted for this … that’s more than 25 percent of the Senate Republicans and, by anyone’s standard – that’s more than a “few”.

Over a quarter of the Senate Republicans, including our darling hero … Scott Brown … voted today to put our kids and grandkids liberty MORE in jeapardy by placing them more in debt.

And Republicans will excuse this by saying it was “politically savvy” of them to vote this way. Or … “it could have been worse! This is only $38 Billion! Only a drop in the bucket!!”

As if that really means a damn anymore.

The GOP is not up to the task of saving this nation. Maybe we’re better off allowing the Democrats to proceed with their “Cloward / Pivven’” thing – and then perhaps some true Patriots can pick up the pieces after the collapse?

I was against third parties … and I’ll still vote for Republicans who I KNOW are up to the work of saving this nation. But I’ll vote for a “nobody” over a RINO, or write a name in.

The GOP better be damn careful about who they nominate in 2012 … that’s all I can say. They have the ball – but I bet they fumble it.

HondaV65 on March 17, 2010 at 2:39 PM

Spending more of our money that we don’t really have on Lord knows what, and they call us mind numbed robots.

Kissmygrits on March 17, 2010 at 9:32 PM

The stimulus bill was supposed to advance highway and infrastructure projects; so now, with $400 billion of that still unspent we need another highway stimulus bill. hmmmmmm

You are right, HondaV, that Repubs just don’t have the stones to stop spending either. It is maddening, to say the least. When I saw ‘bipartisan’, I just knew our MS King of Pork, Thad Cockroach (Cochran) would be in the middle of it. And so he was.

We’re on the highway to hell.

GnuBreed on March 18, 2010 at 12:46 AM