How tax cuts would have created more jobs than the stimulus
Writing in an opinion piece in today's Wall Street Journal, Michael Boskin -- then-President George H.W. Bush's top economic adviser -- argues that payroll tax cuts for businesses would have created far more jobs than President Obama's $787 billion stimulus.
The White House says the stimulus has saved or created (or, more accurately, will save or create, once it's all paid out) 1 million jobs. This comes at a cost of $787 billion.
Cutting payroll taxes 6 percent would have reduced businesses' expenses by about the same amount the decline in employment has, it would have cost less than half of the stimulus and it would have created incentives for businesses to hire, Boskin writes, citing research by Stanford's Pete Klenow and University of Rochester economist Mark Bils.
You can read the entire piece by clicking here.
At the heart of this crisis has been an ideological war between fiscal conservatives, who oppose government spending, saying tax cuts are the way to go because they will encourage businesses to hire and put more money into consumers' pockets; and fiscal liberals, who believe that massive injections of taxpayer money from the government is the boost the economy needs. Boskin writes:
There is little likelihood that another round of similar fiscal stimulus would yield much more than the paltry return on the first one. The original transfer payments and tax rebates barely nudged consumer spending, and the federal spending has been painfully slow. The delayed infrastructure spending -- the shovels are still in the shed -- will have a bigger impact, though less than claimed. Some of the funds to state and local government did reduce layoffs. The stimulus bill surely ranks dead last compared to the natural dynamics of the business cycle, the Fed's zero interest rate policy, and the automatic stabilizers in the tax code (which have reduced taxes proportionally more than income) as far as explanations for the improvement in the economy.
I acknowledge that much of the stimulus has been back-loaded, meaning the bulk of it won't be spent until the end of next year. But even the White House has had to backtrack on what it expected from the stimulus, saying initially it could save or create 3 million jobs, a figure that is now down to 1 million.
This morning in China, President Obama in an interview on Fox News (!) gave a shout-out to deficit and debt hawks, saying the rapidly growing debts -- added to by his stimulus -- could cause a loss of confidence and maybe even a double-dip recession. He told Fox he is willing to consider targeted tax cuts to help bring down unemployment, effectively agreeing with Boskin's argument in today's Journal.
-- Frank Ahrens
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November 18, 2009; 11:31 AM ET
Categories: The Ticker | Tags: Michael Boskin, Obama, stimulus plan, tax cuts
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