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A Dissent on the New Jobs Tax Credit

Pete Davis worked on one of the last New Jobs Tax Credits to come through Congress. He's not happy to see it return:

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.

For those who want more background, Davis points to an excerpt from The Economics of Taxation, where Jimmy Carter's top tax economist, former deputy assistant treasury secretary Emil Sunley, recalls the debate over the tax credit. You can download it here.

By Ezra Klein  |  October 7, 2009; 4:26 PM ET
Categories:  Stimulus , Taxes  
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"No new jobs were created, although proving that is almost impossible."

Same argument applies to the $787BN stimulus package. Most government programs are miserable failures. Proving that is easy...getting rid of them is impossible.

Posted by: kingstu01 | October 7, 2009 4:53 PM | Report abuse

"It was obvious that the credit would reward new hires long after the decision to hire had been made for other reasons."

That would be a good example of a poorly-designed tax credit, now wouldn't it?

In contrast, anyone with an IQ over 120 could probably think even just a few minutes and come up with better ideas than ones that "reward new hires long after the decision to hire", etc.


So, start with a better idea, and then begin to work out a better plan:

Posted by: HalHorvath | October 7, 2009 5:07 PM | Report abuse

That is, a better way to create job incentives.

Posted by: HalHorvath | October 7, 2009 7:13 PM | Report abuse

There are a variety of opinions on the effectiveness of a New Jobs Tax Credit. It is interesting that public finance economists, who like a nice simple tax code, tend not to like the NJTC, whereas labor economists, who have some interest in encouraging more employment when unemployment is high, tend to be more favorable.

Pete Davis's and Emil Sunley's comments don't really offer any empirical evidence on the NJTC's actual effects. No one denies that an employer wage subsidy for expanded employment will provide credits for some employment expansions that would have occurred anyway. The issue is whether some jobs are induced, and if so, how many and at what cost.

The Emil Sunley post has comments posted to it by me and John Bishop that do offer some empirical evidence. This evidence suggests that the NJTC did have significant job creation effects, even if it did make the tax code more complex in some sense.

Tim Bartik

Posted by: bartik | October 7, 2009 9:59 PM | Report abuse

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