Network News

X My Profile
View More Activity
Posted at 12:36 PM ET, 12/ 7/2010

CAP: Tax cut deal could create 2.2 million jobs

By Ezra Klein

CAP's Michael Linden and Michael Ettlinger have taken the stimulus estimates used by economist Mark Zandi and the Congressional Budget Office and tried to come up with a ballpark figure for the jobs the tax-cut deal will create. They've also come up with a ballpark figure for the jobs a better deal -- one in which the tax cuts for income over $250,000 expired and that money was spent on a big payroll tax cut -- could create. Here's their breakdown:

jobs-01.1.jpg

So, the deal Obama got might net the economy 2.2 million jobs -- but a better deal could've gotten us 2.7 million jobs at the same price. That second deal wasn't on the table, of course.

By Ezra Klein  | December 7, 2010; 12:36 PM ET
Categories:  Taxes  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Remembering the good times
Next: Lunch Break

Comments

Simple question, of course.

Why do liberals at the same time claim that the rich 'save' but not 'spend' their tax cuts but at the same time incessantly ramble about how the rich will 'spend' their tax cuts on luxury cars and yachts and handbags?

Posted by: krazen1211 | December 7, 2010 12:52 PM | Report abuse

Simple question, of course.

Why do liberals at the same time claim that the rich 'save' but not 'spend' their tax cuts but at the same time incessantly ramble about how the rich will 'spend' their tax cuts on luxury cars and yachts and handbags?

Posted by: krazen1211 | December 7, 2010 12:52 PM | Report abuse

But most of these provisions are ALREADY in place (the one big exception being the payroll holiday, but that is at least in part a replacement for the Make Work Pay expiration)....so we're NOT talking about creating jobs, we're talking about SAVING EXISTING jobs right? There's almost no NEW stuff here over and above what was in place last week before UI expired.

What am I missing?

Posted by: chaboard | December 7, 2010 12:54 PM | Report abuse

It's hard to imagine how 2.2 million jobs can be created with a deal that simply preserves the status quo, when in fact the status quo isn't producing jobs.

Posted by: lauren2010 | December 7, 2010 1:17 PM | Report abuse

for 700 billion dollars you can hire 23 million people and pay each $30,000 for a year. so i have an offer to that blows away CAP's "plan". give me the 700 billion, i'll pocket 600 billion and hire 3.3 million people with the rest.

anyway, Zandi's model doesn't behave properly in this boundary case. in reality, i could outperform this compromise byabout 4 million jobs by pocketing all 700 billion. i don't think it would be possible to craft an economically worse piece of legislation.

Posted by: eggnogfool | December 7, 2010 1:21 PM | Report abuse

Spending $100s billions on a few luxury items by a small number of people (1 person out of 100) isn't anywhere near the job creation mechanism as taking that money and directly creating new infrastructure (or other) jobs for the 16 out of 100 people out of work.

Yes, Tiffany's and the local Mercedes dealer (etc) will continue to maintain their jobs (which they will even without this deal), but it's not going to drastically (if at all) create any new jobs.

The rich are already hoarding their money. And they aren't hiring now though they have historic amounts of money to invest in business hiring. So it stands to reason that increasing their hoards by a few percent (individually) at an overall cost of well over half a trillion dollars won't alter anything. There are numerous economists who have explained all this much better than I ever will be able to. Not that I expect an ideologue like Krazen to pay attention to such people.

Posted by: lauren2010 | December 7, 2010 1:25 PM | Report abuse

Ok, Thank you for the numbers Ezra. Sorry to be so hard on that. I know you're rushed.

This appears quite different from Krugman's back of the envelope estimate.

According to the BLS, "The number of unemployed persons was 15.1 million in November. The unemployment rate edged up
to 9.8 percent"

at: http://www.bls.gov/news.release/pdf/empsit.pdf

Now suppose those 2.1 million jobs are 1.3 million in 2011 and 800,000 in 2012. That means about a 1% drop in the unemployment rate in 2011, and about a 1/2% drop in 2012.

Much bigger than Krugman's figures but still trending the wrong way. And big enough to be worth this?

Posted by: RichardHSerlin | December 7, 2010 1:26 PM | Report abuse

"so we're NOT talking about creating jobs, we're talking about SAVING EXISTING jobs right?"

Sure, but the goal posts were moved from creating jobs to "create or save" jobs back in 2009. Under this framework you don't need an actual improvement in the unemployment rate in order to declare victory - you only need Mark Zandi to back up your claims.

Of course, this example highlights an important inconsistency in progressive thought - progressives strongly supported the $800 billion stimulus program said to create or save 3 million jobs, but oppose the $594 billion package which will create or save 2.2 million jobs. While ARRA is ever so slightly more efficient at creating jobs per the Keynesian multiplier analysis, the difference is slight.

Yet despite similar bang for the buck, progressives are up in arms over this deal, including some important Democrats in Congress.

Curious, no?

Posted by: justin84 | December 7, 2010 1:27 PM | Report abuse

Other comments have beat me to it -- this is all BS. We've seen what this kind of crap does -- we have done the experiment. Stop trying to put lipstick on this GOPig.

Posted by: AZProgressive | December 7, 2010 1:47 PM | Report abuse

@Justin84:

Fair point generally.

For me, I believed that the ARRA was valuable for the purpose of regaining confidence (market was around 6-7K at the time) and preventing overcontraction. i think it succeeded well at both.

This can support neither of those goals, while delaying the inevitable adjustments we will have to make before moving forward and maintaining this state of economic purgatory. All for a hefty price tag. Yay.

Posted by: eggnogfool | December 7, 2010 1:49 PM | Report abuse

justin

Your logic and facts amount to nothing more than a bunch of incoherent babbling.

The fact is, the Dems created 33 million at their previous turn at bat, and until recently, stimulus created more jobs in one year than Bush did in eight.

Curious, yes?

Most progressives wanted more stimulus than what Obama agreed to, and wanted it targeted differently. Obama's stimulus was like 40% tax breaks designed to win GOP support. Many economists believe Obama erred by both limiting the size and nature of the stimulus.

Take your failed ideological delusions elsewhere. No one who is objective pays your tortured logic and facts any attention.

Posted by: lauren2010 | December 7, 2010 1:53 PM | Report abuse

"For me, I believed that the ARRA was valuable for the purpose of regaining confidence (market was around 6-7K at the time) and preventing overcontraction. i think it succeeded well at both."

It's fair to note that things were much scarier back in early 2009, though I think it also matters that while unemployment isn't rising anywhere near as rapidly as then, the level of unemployment is much higher today (9.8%) than Jan09 (7.7%).

I think it's important to point out that people like Paul Krugman weren't interested in just damage control - he wanted a larger stimulus in order to close the output gap. Why is Krugman's advice today to reject the whole deal (again estimated by the CBO to save 2.2 million jobs), rather than to complain it is too small?

"This can support neither of those goals, while delaying the inevitable adjustments we will have to make before moving forward and maintaining this state of economic purgatory. All for a hefty price tag. Yay."

For the record, I don't think stimulus works either. I more or less agree with your assessment. Fiscal stimulus generates temporary patterns of spending that will need to be replaced by permanent ones in recovery, and these temporary patterns delay necessary adjustment.

I think the change in heart is motivated by three things:

1) Much of stimulus II goes to tax cuts and to the rich, whereas ARRA went primarily to spending programs and tax credits supported by Democrats
2) Progressives have a lower opinion of Obama today than in early 2009 and are less inclined to see his second term (been seeing the phrase primary challenge quite often around here)
3) Republican controlled house means Republicans can claim some of the benefit if unemployment does start to fall

Posted by: justin84 | December 7, 2010 2:13 PM | Report abuse

Yet despite similar bang for the buck, progressives are up in arms over this deal, including some important Democrats in Congress.

Curious, no?

Posted by: justin84 | December 7, 2010 1:27 PM | Report abuse

maybe if the jobs were GUARANTEED to be union jobs their thought processes on these things could change, no?

Posted by: visionbrkr | December 7, 2010 2:24 PM | Report abuse

Before everyone gets up in arms over this deal, you should try looking at whats in the package. This is a package with $840 billion in tax cuts for the middle class and small businesses, and unemployment benefits. There is $120 billion in wasteful tax cuts for the rich. Is it really worth voting against that $840 billion and cost America up to 3 million jobs, just because of this $120 billion?

Posted by: wcampb17 | December 7, 2010 2:32 PM | Report abuse

Well justin I think the difference is due to the different points of where we are in the cycle.

In January 09 the bottom was falling out and we were losing 700k jobs a month. In that environment saving a job and creating a job have the same value. Stop the bleeding at all costs.

But here it's been well over a year since we've been shedding jobs but the political problem is that creation is slow. The goal now should be actual creation.

Of course given the GOP congress it's pretty much impossible to pass anything that might actually do that so I guess saving a few is the best we can do.

Posted by: chaboard | December 7, 2010 2:37 PM | Report abuse

@Justin
"For the record, I don't think stimulus works either."

I wouldn't say that. I would say that for a given country and its policies, there is a 'sustainable economic trend'. If output falls below this trend, stimulus can fill the gap, and private industry will take over eventually without a very problematic hiccup. And if output runs above this trend for a while (bubble of some sort), stimulus can prevent overcontraction.

One might argue that with and without stimulus, after 10 years or whatever GDP should in this depiction be about the same. But economics should not be thought to be path independent; in between point A and point B, stimulus can prevent a lot of 'suffering', which may not show up in the N+10 GDP but it should be a major (the major?) factor in policymaking.

Posted by: eggnogfool | December 7, 2010 2:45 PM | Report abuse

"The fact is, the Dems created 33 million at their previous turn at bat"

33 million? Source?

You mean the 18.7 million increase in employment (per the BLS household survey) from Jan93-Jan01? Keep in mind that ~70% of that occurred under a Republican Congress. Nevermind that Clinton governed like a moderate Republican for 6 of those 8 years. Nevermind that the economy of the 1990s was going to be hard to derail and the 2000s were going to be tough because of the credit bubbles.

The Dems didn't *create* anything - a Democratic President and a Republican Congress *happend to be in office* during an economic boom. That was it.

"Obama's stimulus was like 40% tax breaks designed to win GOP support."

There were almost no broad based tax cuts of the marginal rate type that Republicans support in ARRA. There were various credits (make work pay, EITC, child tax credit, more than 40% of the total) which were nothing more to sending checks to everyone but the top earners. Did anyone really think that table scraps were going to get the GOP to sign on?

"logic and facts... amount to nothing more than a bunch of incoherent babbling"

We've long known logic and facts are stumbling block for you Lauren, no need to remind.

Posted by: justin84 | December 7, 2010 2:48 PM | Report abuse

I'm just watching the river run here, although generally speaking justin is very good with numbers, so I'm proably with him.

You're all operating under an assumption that I don't agree with, namely that jobs are in some sense "coming back". I believe that businesses have learned to make money with fewer people and by and large will not hire except when absolutely necessary. I think they only exception would be the construction industry, which is broken but could accomodate really big numbers in any return to higher levels of sales.

I believe that 7-8% unemployment is the new normal for most of this decade. The real question is can Bernanke, magnificent bastard that he is, get us there before he blows the whole thing up?

I think probably not, but I LOVE the big ones on that man, and how he'll take on everybody and everything for what he thinks is the right course of action.

Posted by: 54465446 | December 7, 2010 3:07 PM | Report abuse

"I wouldn't say that. I would say that for a given country and its policies, there is a 'sustainable economic trend'. If output falls below this trend, stimulus can fill the gap, and private industry will take over eventually without a very problematic hiccup."

Eggnogfool,

I see it a bit differently. Fiscal stimulus shuffles money around, but it's very difficult to tell what the precise impact is.

Say you borrow $100 billion from China and $100 billion from private businesses in order to spend $200 billion in a year. The effect of the $200 billion in spending is net of what China would do and what the businesses would do with that money. Moreover, once the $200 billion is spent, the patterns of spending that the $200 billion support collapse instantly, whereas it takes awhile for the new patterns of spending to emerge.

If the government borrows in order to spend $3 trillion on one specific area, say military equipment, I'll bet it could get a surge in production of military equipment, though I think you'd also see every other sector languish (this is what happened in WWII). The private sector economy didn't really exit the depression until war spending was slashed.

I do think that monetary policy can do quite a lot, mostly on an emprical basis. The Fed has an industrial production index, which shows production surging 57% from Mar-Jul of 1933 as the U.S. left gold, before falling 18% on the back of the NRA (which included a 20% wage hike).

I support an NGDP targeting framework, in which the Fed does nothing other than target NGDP expectations along a path consistent with no long-run inflation
in order to mute/offset any demand shocks. I'm not 100% sure if it would work as it's never been tried, but given the experience of the past few years it could hardly be worse than using our current monetary policy tools.

"But economics should not be thought to be path independent; in between point A and point B, stimulus can prevent a lot of 'suffering', which may not show up in the N+10 GDP but it should be a major (the major?) factor in policymaking."

While I lean libertarian, I do agree that if the government is going to spend on social programs, work relief in tough times isn't the worst way to spend it.

Posted by: justin84 | December 7, 2010 3:10 PM | Report abuse

The other question is: how many jobs would have been *lost* if the middle-class tax cuts, plus unemployment, and the stimulative tax provisions, had expired on January 1 in the midst of this battle. That was apparently a motivating factor in this compromise: not just the impact on individual middle-class families and the unemployed, but the impact on the fragile economy and jobs as a whole. I heard someone on tv say that economists were estimating more than one million.

Posted by: JJenkins2 | December 7, 2010 3:15 PM | Report abuse

"Spending $100s billions on a few luxury items by a small number of people (1 person out of 100) isn't anywhere near the job creation mechanism as taking that money and directly creating new infrastructure (or other) jobs for the 16 out of 100 people out of work.

Yes, Tiffany's and the local Mercedes dealer (etc) will continue to maintain their jobs (which they will even without this deal), but it's not going to drastically (if at all) create any new jobs.
"

Hardly, you just made that up. In fact, your typical car manufacturers like Ford and GM and Toyota in fact own many of those luxury brands.

There's no reason to take a jealous redistributionist seriously.

Posted by: krazen1211 | December 7, 2010 3:45 PM | Report abuse

"Of course, this example highlights an important inconsistency in progressive thought - progressives strongly supported the $800 billion stimulus program said to create or save 3 million jobs, but oppose the $594 billion package which will create or save 2.2 million jobs. While ARRA is ever so slightly more efficient at creating jobs per the Keynesian multiplier analysis, the difference is slight."

It should also be said that we get $594 billion of useful purchases as people don't toss away their own money.

With the ARRA we got turtle crossing tunnels and bailouts to union teachers.

Posted by: krazen1211 | December 7, 2010 3:48 PM | Report abuse

"This can support neither of those goals, while delaying the inevitable adjustments we will have to make before moving forward and maintaining this state of economic purgatory. All for a hefty price tag. Yay."

That sounds precisely like ARRA and the state budget bailout.

It's not like the fat cat state of California can sustain its fiscal self.

Posted by: krazen1211 | December 7, 2010 3:55 PM | Report abuse

Justin

Now I discover you like editing people's comments and reposting them in a new form with new meaning.

That's called lying.

Here's the offensive edit: "logic and facts... amount to nothing more than a bunch of incoherent babbling"

Note your added elipse in the middle, indicating you are well aware of proper editing notation. Yet, you somehow and conveniently failed to include the lead word "Your" in that sentence.

So Justin, not only do you have a strange system of facts and logic, but you are a provable liar too.

I suppose an apology is out of the question for misleading people about what I said.

Posted by: lauren2010 | December 7, 2010 4:57 PM | Report abuse

Justin : "33 million? Source?"

Oops. I should have said 22 million. Google for sources if you like. But you see my point.

Justin : "Keep in mind that ~70% of that occurred under a Republican Congress."

That shows your ideology clouding your judgement. Hi-tech job creation was well under way before the 94 Congress was elected. By your own figure, 30%. Obviously something right was happening long before those GOP scoundrels got elected.

Justin : "Nevermind that Clinton governed like a moderate Republican for 6 of those 8 years."

LOL Too bad we can't get REPUBLICANS to act like moderate Republicans. But actually, I agree. Most of the mistakes Clinton made are directly traceable to his desire to compromise with Republicans or to make them happy. Nafta was passed ONLY because Republicans supported it in Congress. Most Dems voted against it. Glass-Steagall was another mistake, championed by Republicans, opposed at first by Dems.

Justin: "Nevermind that the economy of the 1990s was going to be hard to derail and the 2000s were going to be tough because of the credit bubbles."

Oh, Greenspan did a fine job of sabotaging things.

Justin : The Dems didn't *create* anything - a Democratic President and a Republican Congress *happend to be in office* during an economic boom. That was it.

You are wrong. Venture capitalists credit Gore (and Clinton) with the deficit act of 94 and various telecommunication acts that made their business models possible and the hi-tech run possible.

Clinton could have easily made mistakes that would have squashed the hi-tech run in its infancy. Instead, largely because of Gore, they nurtured it and was careful to listen to hi-tech CEOs and venture capitalists in order to keep that snowball rolling. I believe we have another hi-tech boom waiting to happen just as soon as we finish with these foolish wars and tax cuts and instead start making investments in renewable/clean energies and the such.

Posted by: lauren2010 | December 7, 2010 5:20 PM | Report abuse

"Now I discover you like editing people's comments and reposting them in a new form with new meaning.

That's called lying."

LOL. Leaving out a few words on a comment on the same page - some deception. Couldn't get it past you though.

"I suppose an apology is out of the question for misleading people about what I said."

For someone who dishes out ad hom on a near daily basis, you sure can't take much. No one reading these comments will have been mislead. That said, I'll be civil from here on out - my apologies for the offense.

"That shows your ideology clouding your judgement. Hi-tech job creation was well under way before the 94 Congress was elected."

Remember I'm not a Republican, so I doubt my ideology is clouding my judgment. I'm merely pointing out that the strong years of the 1990s boom occurred with Republican Congress, and the passage of nominally Republican policies such as welfare reform and capital gains tax cuts. In addition, job creation started before Clinton took office, in the middle of 1992 (heck, there was even a boom back in the 1980s, when unemployment fell from 10.8% in 1982 to 5.0% in 1989).

Overall point - it's not that I want to credit the Republicans, but rather point out the U.S. government included people other than Bill and Al back in the 1990s.

"You are wrong. Venture capitalists credit Gore (and Clinton) with the deficit act of 94 and various telecommunication acts that made their business models possible and the hi-tech run possible."

The internet would never have existed without one (or two) politicians? Internet companies could have never gotten off the ground without the government? I daresay your ideology is blinding you. I'll give you that the government was responsible for the origins of the modern internet, and while I recognize that the government has real achievements (arpanet, apollo), I have reservations which are well put here:

http://mises.org/daily/2211

"Clinton could have easily made mistakes that would have squashed the hi-tech run in its infancy."

He could have squashed the economy, I agree, though I'm sure we differ on what would cause the squashing.

"I believe we have another hi-tech boom waiting to happen just as soon as we finish with these foolish wars and tax cuts and instead start making investments in renewable/clean energies and the such."

If Clinton could effortlessly generate jobs in his first two years (as you yourself note), why isn't the Obama job creation machine rolling? Since May we have lost 1.6 million full time jobs (per BLS household survey), and unemployment is up from 9.5% this summer to 9.8%.

I agree the war sucks wealth out of the private sector and destroys it, though I'm not sure that is what is holding up the green jobs boom - it appears to be comparative advantage:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adIdrmtTtyw8

Posted by: justin84 | December 7, 2010 10:37 PM | Report abuse

Post a Comment

We encourage users to analyze, comment on and even challenge washingtonpost.com's articles, blogs, reviews and multimedia features.

User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions.




characters remaining

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company