TCF Budget Analyst Andrew Fieldhouse offers five job creation policies for handling the fiscal obstacle course and slowing deficit reduction.
His post outlines the five job creation proposals in our new paper,Navigating the fiscal obstacle course, which offers policymakers a realistic blueprint for moderating the pace of deficit reduction to boost growth and employment. Relative to current policy, the paper recommends investing roughly $600 billion over the next decade, mostly over the next three years, in emergency unemployment benefits, aid to state governments, infrastructure investment, investing in teachers and school modernizations, and a one-year targeted tax rebate.
Below are the 5 job creation proposals. See more details on Blog of the Century.
1. Emergency Unemployment Compensation
We propose restoring the Emergency Unemployment Compensation program to again support up to 99 weeks of benefits in high unemployment states and continuing the program over 2013—2015. Emergency unemployment benefits are one of the most efficient forms of economic support, generating $1.52 in economic activity for every dollar in benefits (according to Moody’s Analytics) but they also help ameliorate the long-term unemployment crisis.
2. Aid to state governments.
We propose providing $50 billion in direct fiscal relief to distressed state governments in 2013, $40 billion in 2014, and $30 billion in 2015. State fiscal relief can be easily implemented through block grants and the formula for federal Medicaid funds, and aid to state governments demonstrates a high bang-per-buck of $1.31. The Center on Budget and Policy Priorities estimates that states have experienced cumulative budget shortfalls of $540 billion over fiscal 2009—2012, with another $55 billion shortfall projected for fiscal 2013.2 The Recovery Act provided some state fiscal relief—now long depleted—and state and local government spending cuts have dragged at GDP growth for the past 12 consecutive quarters. State and local government employment has fallen by 605,000 jobs from its peak, and roughly another 2.3 million jobs would exist today without state and local government austerity, with roughly half those jobs in the private sector.
3. Infrastructure investment
We propose investing in the immediate surface transportation priorities, infrastructure bank, and expanded surface transportation reauthorization bill proposed in President Obama’s fiscal 2013 budget (modified to finance twice as much—$100 billion—in immediate priorities), increasing investments by $234 billion over the next decade. Infrastructure spending is particularly cost-effective in boosting demand in a depressed economy, presently yielding a bang-per-buck of $1.44. Investments also increase the productive capital stock, laying the foundation for long-run growth.
4. Investments in teachers and schools
We propose investing $30 billion in modernizing schools and providing states and local governments with $25 billion to rehire teachers over 2013—2015, adopting sound proposals from the president’s American Jobs Act. The backlog of deferred repairs to our schools exceeds $270 billion. Funds to bring schools up to fire code, replace leaky roofs, improve HVAC systems, repair structures, and undertake energy retrofits could be distributed to school districts through the federal elementary and secondary education grant program, as EPI previously proposed with the Fix America’s Schools Today (FAST!) job creation program. The strain on local budgets has also resulted in a “teacher gap” of 315,000 jobs after accounting for layoffs and unmet hiring needed to keep up with population growth. And as noted above, the “bang per buck” for infrastructure investments and state budget fiscal relief are quite high.
5. Targeted tax rebate
We propose enacting a one-year, $53 billion targeted refundable tax rebate to cushion the expiration of the payroll tax cut for lower– and middle-income households in 2013. Tax cuts’ impact on near-term demand depends entirely on how well they are targeted toward households likely to quickly spend an extra dollar of disposable income. The payroll tax cut is more stimulative than marginal income tax rate reductions because all working households pay the payroll tax and flat payroll taxes are more regressive than income taxes. The payroll tax cut, however, is less targeted than the Making Work Pay tax credit it replaced and on net actually increased taxes on lower-income households while giving new tax cuts to upper-income households. A targeted refundable tax rebate would more efficiently pump money into the economy.