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A deficit-neutral jobs program

Yesterday's unemployment vote -- in which Democrats barely mustered the 60 votes necessary to pass a short, less-generous extension of unemployment benefits -- showed pretty decisively that there's going to be no further emergency jobs legislation coming out of the Senate. Anything further will require offsets -- and might not even pass in that case.

But at this point, it's worth trying. It's best to do jobs legislation using deficit dollars. That way you're not taking money out of one part of the economy to put it into another. But as Dylan Matthews wrote yesterday, money spent in different places does provide different levels of stimulus. It's plausible that you could move cash from, say, tax cuts for the wealthy, which tend to get saved, and use it instead for a payroll tax holiday, or infrastructure projects, or a tier of unemployment benefits for people in states with unemployment rates above 9 percent and who've been out of a job for more than 99 weeks.

As such, a proactive, deficit-neutral jobs agenda now involves two parts. First, deciding where the money should come from. Is it time to take a scalpel to military spending? Is it the Bush tax cuts? Is it the money Medicare spends on drugs that it could save if it bargained the prices centrally? In fact, the CBO said a strong public option would save about $120 billion over 10 years: That would give you $120 billion to spend next year, as short-term spending can be balanced over multiple years. This is an unusually good time to take on some bloated programs or bad decisions that there's not usually any reason or energy to revisit.

And second, it requires deciding what needs to be funded. The word "stimulus" is, unfortunately, a bad word. An unpopular word. It's too vague. So whether we're talking about money for teachers, or unemployment benefits, or bridges, or payroll tax holidays, politicians who want to do more for job creation need to decide what it is they want to do and speak about those things clearly. Policy is an endless series of choices, and the jobs situation is no different. If Democrats can't move Republicans on the choice between jobs and deficits, maybe they can move them -- or the public -- on the choice between specific jobs and relief programs and other ways the government spends money.

By Ezra Klein  |  July 21, 2010; 10:47 AM ET
 
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Comments

Because the defense industry doesn't employ anyone?

The fact is that bloated programs and bad decisions create a lot of jobs even if they don't produce much else of value. The time to cut them is when the economy is doing well, and the people employed by them can find decent jobs elsewhere.

A lot of what you are talking about is virtually jobs neutral legislation in the ideal case, but in the real case you are likely to have to give away some non-job producing tax cuts or whatnot to the REpublicans in order to get them to let you replace some unproductive but job producing spending with productive job producing spending. So that's likely a real net job loss.

The Bush tax cuts are scheduled to expire soon anyway, so there is negligible revenue-neutral money to be had there.

The public option may save 120 billion, but a lot of the 'efficiency gain' there would be in the form of reduced overhead/employees (again, reduced jobs). And the whole public option concept is a non-starter in the Senate, as we already know.

Posted by: eggnogfool | July 21, 2010 11:15 AM | Report abuse

On a more positive note, having an energy policy would do great things for our economy.

A properly-written carbon tax would create millions of jobs.

A reasonable cap on the mortgage interest deduction wouldn't cost many jobs, but would produce a ton of revenue that could be used for jobs spending.

I just don't like lines of thinking that boil down to "hey, if we fired a bunch of people then we could pay for jobs legislation!"

Posted by: eggnogfool | July 21, 2010 11:23 AM | Report abuse

So you want to cut defense and increase short-term spending

You know it is an election year when Ezra starts campaigning

Posted by: Holla26 | July 21, 2010 11:24 AM | Report abuse

It's tooting my own horn a bit, but I did write a blog post on this very issue:
http://realignmentproject.wordpress.com/2010/06/26/budget-neutral-jobs-policy-in-an-era-of-irrational-austerity/

Posted by: StevenAttewell | July 21, 2010 11:24 AM | Report abuse

It's tooting my own horn a bit, but I did write a blog post on this very issue:
http://realignmentproject.wordpress.com/2010/06/26/budget-neutral-jobs-policy-in-an-era-of-irrational-austerity/

Posted by: StevenAttewell | July 21, 2010 11:25 AM | Report abuse

Cut way back on defense contracting, There is lots of stuff the military really doesn't need, stuff that Congressment put in for which they got kickbacks (see several GOPers in the San Diego area delegation), and much of it just funds the lavish lifestyle of the management at the company.

Then look at tax expenditures. Limit the mortgage deduction for high-income taxpayers. Cut lots of tax credits and breaks for business. If something can't survive as a direct subsidy, it shouldn't be there unless it has a direct relatio to the tax code, prhaps like the child credit and Earned Income Tax Credit, although there we could just lower the bottom rates some more.

But generally, the cuts have to come from the top earners because they spend less of a percentage of their income and so generate fewer jobs. And I'd much rather see infrastructure jobs that create something useful rather than more miltary equipment, especially the big-ticket items against non-existent military threats.

Posted by: Mimikatz | July 21, 2010 11:30 AM | Report abuse

This is probably an option that should be explored, but I do not hold out much hope.

As Ezra has noted, on a practical level deficit spending is just more stimulatory than moving money from on sector to another... but there are political problems too.

The basic problem is that Republicans really do not care about the deficit! It is just a political strategy.

They have proven this by supporting tax cuts without offsetting that spending. They will obviously stick to the line, totally unsupported in economic history, that further tax cuts to our already reasonably low tax rates will magically INCREASE government revenue! And unfortunately a reasonable segment of the public will believe them (after all it is easy to believe something that you WANT to be true - despite all the evidence to the contrary)

Now, if the problem is that Republicans will not allow you to pass deficit spending for stimulus, why would they allow attacks on their sacred cows of taxes, corporate "welfare" like the prescription drugs, or defense spending? (though that one is really a non starter anyway right now when we are in the midst of two wars)

The Republican attack ads write themselves - "Democrats want to take private sector money out of the system to prop up big government spending" (forget the fact that private companies are flush with cash but not hiring etc)...

So - if you believe that the real problem here is that Republicans care about the deficit, then deficit neutral stimulus is the way to go. If, on the other hand, you believe the problem is that Republicans want to stymie any Democratic initiatives at all, and get back in power to continue with their tax cutting, deficit increasing, corporate welfare policies of the Bush II administration, then this policy is probably going to be a non-starter too!

Posted by: lazza11 | July 21, 2010 11:44 AM | Report abuse

One exemption that I think could/should be killed, and would be popular to do so,

is the fact that perks for executives aren't taxed. "it's a business expense, not an income", sure.

but in practice, the fact that if you are rich enough, your car and car expenses, sporting event seats, golf club membership, personal lear jet, meals, and so forth are all tax deductable makes no sense, and would be wildly unpopular if people knew about it.

Posted by: eggnogfool | July 21, 2010 12:04 PM | Report abuse

"on the choice between specific jobs and relief programs and other ways the government spends money"

1. Too arcane. The message would require paragraphs and people tune out after a sentence or two.

2. Do you really believe that an honest discussion of the "ways the government spends money" would increase support for increased spending?

Posted by: ostap666 | July 21, 2010 12:14 PM | Report abuse

They've been going about this completely backwards. We all know that tax rates especially for the wealthy and corporations have been at all time lows for quite a while. It's hard to inspire people to quit hoarding cash by offering tax cuts when they are already paying a minimum. With these cuts set to expire how about offering hiring incentives based on lesser tax increases. We've been surviving,barely, without much tax revenue for the last decade so it's not like a scaled down tax increase will be woefully missed. Offer these companies upwards of a 50% less tax increase for each dollar spent on payroll of new hirees. Talk about a jump start! The key is to offer a very narrow window of opportunity for this tax savings to be applicable. Once the window shuts corporate taxes increase at the 50% rate and one less employee that could have been brought on board. They could structure the tax increase savings on a payroll expenditures curve. That way employers reap more benefits for paying higher wages but not exploit the plan by hiring only highly paid workers to maximize their savings. There, problem solved. Rethugs get their lower tax rates and the unemployed get a job and paycheck which we all know, well minus the GOP, spurs economic growth like no other. Consumers with money in hand and ready to spend at their local community businesses. Inventory is depleted and new orders pile in. Darn, if I wasn't so smart I might even consider a job in politics. Thanks to my successful completion of the GED program I'm afraid I'll have to pass on that public servitude meat grind in D.C.

Posted by: ThePostRail | July 21, 2010 1:55 PM | Report abuse

Solving our deficit woes is a "no-brainer", provided legislators have the gonads to be honest with the American public and the will-power to actually execute the solution.

Because Social Security is "pay as you go" meaning the cash that comes in is immediately paid to beneficiaries, therefore solving America's long term deficit is all about the number 80. Here's why...

80 is the new 65. 80 is the retirement age responsible legislators should have in mind when developing solutions to Social Security. Why 80? The math goes like this: 63/65 multiplied by 84: where 63 was the average life expectancy in 1938, 65 was the retirement age for Social Security in 1938 and 84 is the average life expectancy today. Without accounting for our increased longevity Social Security is not sustainable, period. Medicare can be used to subsidize older worker's health care in order to encourage longer terms of employment. This will ensure Social Security's solvency.

Placing false hopes on ideas that are marginal at best does not serve the public well, but only defers our day of reckoning.

Posted by: 4blazek | July 21, 2010 2:02 PM | Report abuse

What kind of a monsters are these Democrats and Republicans who choose not to help the unemployed families in need.? These politicians make several thousand dollars a week and they want to deny American families in dire need of a few hundred dollars a week because they can not agree how it should be paid? Work something out ! Families are on the brink of disaster! There is NO reason on earth to deny help to these families. They did not create this problem. The rich elite fat cats on wall street did and they still get million dollar bonuses but the unemployed get nothing? What has this country become? I served six years in the military, worked and paid taxes all my life until six months ago when my employer closed his doors due to the recession. Now that I ask for some help from the country I served I am told NO! These politicians dig their heels in with a “my way or the highway” stance bickering over the deficit vs stimulus money while families suffer. Instead of working to find a compromise they just turn there heads and leave us to be fed to the wolves at our doors. If the tables were turned and they had no job or money to live they would cry loudly for help. These politicians from both parties that voted NO must pay the price for their actions. Come November every one of them who voted against the extension should be kicked out in shame.

Posted by: rickw1983 | July 21, 2010 4:33 PM | Report abuse

This is an interesting starting point and proves there are good ideas for job stimulus out there. But American politics just won't let good ideas happen.
btw, if you're looking for work I've been hearing great job search advice on an internet radio show at www.jobtalkamerica.com

Posted by: kcsam215 | July 21, 2010 5:57 PM | Report abuse

We borrowed $1 trillion in 2008, BEFORE the crisis. That seems like a lot of stimulus. We borrowed $1.9 trillion in 2009 post-crisis and are on that path in 2010 again.

More stimulus spending today just means slower growth for our kids in the future. It is unethical and solves nothing. It is an excuse to postpone the dealing with the tough choices:

1) Runaway healthcare costs, which provide a huge incentive not to hire our people here and create unsustainable entitlement programs (Medicare & Medicaid).

2) Huge trade deficits, over $230 billion just with China, meaning their workers make our stuff and get paid with our (borrowed) money plus interest. At $50K each, this is over five million jobs. Compare that with the 8 million lost in this reset of economic activity back to the real level it should have been in the first place. Our global companies and their rich shreholders prosper while the middle class suffers.

3) World Police mentality, spending 4X on defense more than our next competitor. Competition is now economic, not military, in case nobody noticed in Washington.

4) "Don't tax me, tax my kids instead." Right up their with rampant obesity as a character virtue. Republicans, please move to Canada.

Yep, it's gonna be a tough next decade while all this gets sorted out.

Posted by: Factified | July 21, 2010 7:03 PM | Report abuse

Actually, I think there are a number of places within the federal budget where money could be found to pay for unemployment extensions and small business help.

1- Eliminate tax credits/supports for companies that offshore jobs. Why are US taxpayers paying multi-nationals for anything, especially off-shoring jobs?

2- End taxpayer paid support to big oil and other large companies like ADM. End protectionists price supports for other industries, like sugar.

3- Decrease farm subsidies to those who rally need help, like family farms rather than corporate farms which already make billions, and stop making payments to non-farmer farms: no growing, no payment.

4- Trim Defense spending by eliminating plans, ships etc., that the military has already said it doesn't want, can't use, and offer no military value.

These are things that could be done immediately if Congress really had the will. Unfortunately, it's easier to spout platitudes than do the hard work (and take the heat) of cleaning up the tax code and spending mess of the last 30+ years. There's a whole lot more that could be done if lobbying and political contribution monies where removed from the politics. But Congress won't do that - or even allow a Constitutional Amendment - because they'd have too much to lose.

Posted by: valkayec | July 21, 2010 9:06 PM | Report abuse

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