Can anyone explain to me the sudden hostility of Senate Democrats to $3,000 job-creation tax credit being circulated by the incoming Obama Administration? The Obama proposal may be coming down too heavy on the side of tax cuts, but why is this one incentive being singled out?
What I find most perplexing is the opposition coming from John Kerry, who made a similar manufacturing jobs credit a big piece in his tax plan, when he ran for President. In the weeks before the vote, Kerry tried to make his tax plan -- especially his job creation tax credit - the focal point of his argument to the American people. Now, he's disparaging a very similar idea, coming from Obama's team. And, he hasn't even acknowledged this represents a flip in his position on the question -- that he 'was for the jobs tax credit before he was against it'!
As an initial matter, I'd like to review the history of this idea. A jobs credit was first enacted by Jimmy Carter. In the years since, it has been roundly criticized. Not surprisingly, most of the criticism has come from conservatives, who naturally mistrust anything targeted at assisting lower-income, low-skilled Americans. A 1981 GAO study found little evidence of positive impact from the Targeted Jobs Tax Credit:
"these low takeup rates do not necessarily mean that there was no net employment effect they do imply that any effect may have been very small. Also, it may have been at the expense of other low wage nontargeted workers."
The GAO supposed that
"the TJTC's narrow socio-economic targeting approach produced a program that was apparently grossly underutilized and which, in all likelihood, had little impact on the employment levels of the target group members."
However, the GAO also opined that a credit which was more broadly available would actually have created more jobs for the low-skilled workers Carter sought to help.
"It appears, perhaps paradoxically, that the target group members would have benefited much more from a program that was not limited to members of their group."
Not all the criticism has come from the right. A Clinton Administration Labor Dep't. study also criticized the TJTC, finding it cost $300 million and arguing for its elimination. The Inspector-General
"found the tax credits did not induce employers to hire members of target groups they might not otherwise have offered jobs."
The report ripped the TJTC as worse than useless.
"The program largely subsidizes the wages of those who are hired irrespective of their eligibility and the availability of a tax credit. Consequently, for our audit period, we estimate the program cost three times the amount that it returned in economic benefits."
I lack the data and expertise to evaluate these claims. Moreover, at this stage, the public has no clue as to any specifics in the Obama stimulus plan. So, it is impossible for me to compare the Obama proposal to the long-ago expired TJTC.
However, I'm having trouble digesting the criticisms being offered by the Democratic Senators. As noted by SusanG in her front-page story, Sen. Kent Conrad slammed the idea, saying
"If I'm a business person, it's unlikely if you give me a several-thousand-dollar credit that I'm going to hire people if I can't sell the products they're producing."
There may be legitimate question as to whether this credit will produce any jobs, but I'm not sure that's sufficient reason to oppose it. But Of course, no one is going to hire someone to produce products, if there are not enough buyers for the product. Conrad's comment states the obvious, and doesn't really pose a relevant question.
The question should be whether the credit will induce hiring if businesses can sell the products that would be produced. Will there be businesses that would increase hiring, because they are at the margin of being able to produce more product for consumers that would buy the product? A corollary of this question would be whether more hiring would in itself make a difference, increasing demand for a product, in a climate where more jobs are being created as a result of government investment.
Let's suppose for a second that Sen. Conrad's skepticism is justified. If, in fact, the credit isn't utilized for new hires, there would be little negative impact on revenues, so little would be lost in passing it. In contrast, if the credit is utilized for new hires, that would seem to obviate criticisms that it is ineffective.
What if jobs are created and employers start taking tax credits for creating new jobs? Then, the question would be whether the new jobs were of such intrinsic value they justified the lost revenue. Alternatively one might suppose that the new job hires would have positive effects on the economy that would generate offsetting tax revenue. Again, I don't have the numbers or the statistical expertise to make such projections on my own.
Of course, one could argue, as Clinton's Labor Dep't. did, that the new hires would have happened anyway. In that case, the tax credit would really just mean lost revenue, without any great societal benefit -- unless the taxes saved found their way into the economy in other ways. Once again, this is above my pay grade.
What I find most disturbing about the debate is that John Kerry has come out so publicly in criticizing the proposal. Kerry says
"I'd rather spend the money on...kinds of things that much more directly, much more rapidly and much more certainly create a real job."
I'm all for spending every dollar on a new energy grid, infrastructure, high speed rail, universal health care (reducing the unique burden that makes it so hard for American businesses to compete), and every other idea that might put our economy on a stronger long-term footing. The U.S. should put every dollar it can beg or borrow for those purposes. We've had our head in the sand for too long, and we're reaping the consequences now of what we've sown from 30 years of governmental neglect.
If Kerry made the argument that this tax credit would only deprive Treasury of revenue needed for direct spending -- if he argued that the spending is being curtailed to support this tax cut, I'd be more sympathetic to his argument. However, he's not really saying that -- at least, not clearly so. Moreover, he's blithely ignoring that four years ago he was trumpeting his own "manufacturing jobs credit".
In his third debate against President Bush, Kerry spoke of his plan thusly:
"We’re going to have a manufacturing jobs credit and a job hiring credit, so we actually help people be able to hire here."
He made his tax plan the centerpiece of his economic argument in '04, and it was fully-loaded with tax incentives -- both credits and rate cuts -- that he argued would create jobs and a stronger long-term economic foundation.
"Kerry's proposal involved several components, including:
• cutting long-term capital gains taxes resulting from investment in small businesses and "reforming or eliminating" regulations that he said block America's high-tech competitiveness. He specifically cited venture capital investment in technology start-ups.
• offering a 20 percent tax credit to companies that invest in next-generation high-speed Net infrastructure. First responders, such as fire fighters and emergency crews, should have universal access to broadband services by the end of 2006, he said;
• increases in government-funded university research, including the extension of the research and development tax credit "
So, now we have an economic crisis so profound that politicians are finally able to advocate direct spending on infrastructure. The circumstances are dire and terrifying, but I welcome the net effect, if if leads to spending on items -- projects and programs -- that should have been in the federal budget for the last 30 years.
What I'm left wondering about is why the reversal. 4.5 years ago, I wrote an academic paper in praise of the Kerry plan for its carefully calibrated balance of tax carrots and sticks that seemed to hold some promise of reviving American industry. Now, Kerry seems to be doing another of his famous 180-degree turns, without even acknowledging that he's doing that, or explaining why. If the credit was something he advocated in 2004, why does he oppose it now? What has changed his belief in its potential effectiveness? I think, if Kerry wants to make the case against the credit, he needs to explain what is different about this proposal, and why he doesn't believe it would be helpful.
Are we faced with an either/or choice, or is that a smokescreen for some other unexpressed agenda. I've only got questions -- no answers. Before I applaud the Senate Dems' resistance here, I want real answers.