Washington likes quick fixes to big problems. Unfortunately, quick fixes rarely benefit the economy. In 1977, in behind-the-scenes discussions with members of Congress, I argued against the New Jobs Tax Credit. It was obvious that the credit would reward new hires long after the decision to hire had been made for other reasons. We spent $5.7 billion of taxpayer money on it anyway so political leaders had something to show the voters back home. No new jobs were created, although proving that is almost impossible.
The White House is considering reviving the New Jobs Tax Credit for to ward off an election debacle 13 months from now. How much is that worth? Replicating the New Jobs Tax Credit would cost about $13 billion. President-elect Obama proposed a smaller, but refundable $3,000 credit in last year’s campaign. Last January, he dropped it from his stimulus proposal under pressure from Democratic congressional leaders. Now that the unemployment rate is about to top 10%, it’s back on the table.
Jimmy Carter’s top tax economist, Deputy Assistant Treasury Secretary Emil Sunley, recounted the New Jobs Tax Credit debate here in an excerpt from The Economics of Taxation, by Henry Aaron and Michael Boskin. Click on the link at the bottom for the complete chapter.
This Congressional Research Service report has a good synopsis on page 5. Check out the studies cited in footnote 6.
Here’s a proponent of reviving the New Jobs Tax Credit.