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JUST A BILL ON CAPITOL HILL: THE DEBATE IN
CONGRESS OVER THE JOBS BILL
By: Thomas Galvin
2/24/2010
“I’m just a bill. Yes, I’m only a bill.
And I’m sitting here on Capitol Hill…”
- Schoolhouse Rock
Congress has struggled to fulfill the American voters’ expectations of bipartisanship. At a time when people are out of work, national security is at risk and the entitlement programs are poised to explode, members of both parties are unable to work together and forge compromises and consensus. However, because the plight of the American worker is so dire, both Republicans and Democrats have tried to find ways to work together in helping create more jobs. Last year’s Stimulus Bill, was meant to lower unemployment. While the economy did not fall off a cliff, unemployment went up in 2009. Congress is looking to pass a second stimulus but calls it a “Jobs Bill.” This article examines the aspects of the Jobs Bill as well as attempts to forge a bipartisan agreement.
CHRONIC UNEMPLOYMENT
The recession has lasted long enough that many people have been out of work for at least 6 months. Some have even been jobless for more than a year. The New York Times describes them as the “new poor.” People have been “long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives – potentially for years to come.” In fact, 2.7 million people will lose their unemployment benefits before May. Congress is looking to extend those benefits but is not in exact agreement how to do so. The Labor Department says that 6.3-million people have been out of work for at least 6 months, which is the largest number since it starting keeping track in 1948. The next-worst period, the early 1980s, saw half as many people who were unemployed for at least 6 months.
Economists worry that people who have been pushed out of the middle class may be gone forever – especially those in the 45 to 64 age range. It is estimated that the economy needs 100,000 new jobs a month to absorb entrants to the labor force. Add the 15 million people who do not have jobs and a substantial, sustained recovery will still bear witness to many people who can not find work for several years.
THE CHANGING ECONOMY
Previous recessions were followed by powerful expansions spurred by aggressive hiring. However, the American economy is different today. Jobs are scarcer for older people who only have high school diplomas.
It is more common to find companies that are owned by institutional investors who are especially vigilant with the bottom line. The investors want to see profits, quickly, and this is best achieved by slashing payroll. Because unions are not as powerful as they once were, employers are able to place part-time and temporary employees. Blue-collar and white-collar jobs have been moved offshore to Asia and Latin America. Manufacturing has cut 5.6-million jobs because of improvements in efficiency and automation.
Allen Sinai, chief global economist at Decision Economics said, “American business is about maximizing shareholder value. You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.” Economist Lakshman Achuthan said “the pace of job growth has been getting weaker in each expansion. There is no indication that this pattern is about to change.”
According to an analysis of Labor Department data by the National Employment Law Project, before 1990, it took an average of 21 months for the economy to recoup jobs lost during a recession. However, during the recessions in 1990 and 2001 it took 31 and 46 months to return to previous employment peaks.
According to the New York Times, three sectors have led the way out of recessions: automobiles, home building and banking. But, these industries continue to struggle because households have less buying power, foreclosed properties have created a glut in the market and banking has been propped up by government bailouts. Small businesses and new ventures, the major sources of new jobs, have not been able to access capital.
THE JOBS BILL
The House of Representatives passed a $154 billion jobs bill in December. Their legislation provides billions for new infrastructure projects, money for the states and features unemployment benefits. The Senate is where the jobs bill has come under more scrutiny and debate. The Senate deliberated and passed a modest, more focused $15 billion jobs bill in late February. These are the main provisions:
- Waive the 6.2% Social Security tax for any employer who hires a worker has been unemployed for at least 60 days
- Provide a $1,000 income tax credit on the 2011 tax returns for every new employee retained at least 52 weeks
- Allow businesses to write off $250,000 in capital investments in 2010
- Deposit $20 billion into the federal highway trust fund
- $2 billion to subsidize bond issues by state and local governments for large infrastructure projects
The House of Representatives passed the “Jobs for Main Street” bill in December. The pieces that effect employment include $27 billion for states and cities to prevent laying off government workers, $48 billion for infrastructure projects and $20 billion for highways.
The Senate’s leadership believes its plan is a cheaper, simpler approach than President Obama’s proposal that would provide a $5,000 tax credit for each hired worker. The Obama administration estimates its plan would cost $33 billion which places it between the House and Senate in terms of cost.
The Senate had considered a broader, more expansive bill that would have cost $85 billion and included more tax breaks for corporations, extended unemployment benefits and health care provisions. However, Senate Majority Leader Harry Reid wanted to concentrate on the job creating provisions that most members agreed upon.
“I would prefer a jobs bill that simply focuses on some specific job-creating initiatives” said Senator Byron Dorgan, Democrat of North Dakota. The tax credit was a bipartisan idea. It was hatched by Senators Charles Schumer, D-NY and Orrin Hatch, R-UT.
The Congressional Budget Office (which is nonpartisan), concluded that lower Social Security taxes “would be among the most efficient ways for the government to create jobs.” However, the CBO predicts that such tax breaks would generate only eight to 18 full-time jobs per $1 million in tax breaks. Meanwhile, the CBO estimates the Senate plan would add 80,000 to 180,000 jobs over a year. Although, it would be a minor improvement considering that the recession has shed 8.4 million jobs since it began.
As various states struggle with budget problems, many governors have appealed to the federal government for help. Governors from Delaware, Maryland, Washington and Ohio urged Congress to grant money to community banks to be able to make loans to small firms and fund unemployment insurance. States face a combined $193 billion in deficits this fiscal year, according to the Center on Budget and Policy Priorities.
DETRACTORS
However, several analysts are skeptical that the bill’s provisions are the right prescription for the hurting labor force. The conclusion by CBS News is that “it won’t create many jobs.” Bill Rys, tax counsel for the National Federation of Independent Business said, “We’re skeptical that it’s going to be a big job creator. There’s certainly nothing wrong with giving a tax break to a business that’s hired a new worker, especially in these tough times. But in terms of being an incentive to hire a lot of workers, we’re skeptical.”
The Congressional Budget Office (which is nonpartisan), concluded that lower Social Security taxes “would be among the most efficient ways for the government to create jobs.” However, the CBO predicts that such tax breaks would generate only eight to 18 full-time jobs per $1 million in tax breaks. Meanwhile, the CBO estimates the Senate plan would add 80,000 to 180,000 jobs over a year. Although, it would be a minor improvement considering that the recession has shed 8.4 million jobs since it began.
It comes down a question of supply and demand. Rick Klahsen, a tax expert with the accounting firm RSM McGladrey, said that his clients need to see an increase in volume, orders and business before they can think about hiring workers. “If demand were increased, they are saying it will take care of itself because I will then have the motivation to go out and hire new employees.” Roberton Williams, senior fellow at the Tax Policy Center of the Urban Institute, told ABC News “Generally, companies only hire more workers if they think demand for their products is going to increase. But the real winners will be firms who were going to hire anyway.”
One of the nation’s most prominent economists, Mark Zandi, is also critical of the bill. Zandi, chief economist at Moody’s Economy.com, said the bill is “too small” to tackle the jobs situation. In fact, Zandi told Democratic leaders, “I don’t think this is enough. It’s too small a step and more needs to be done. However, Zandi did say it was “a good first step.” Zandi said, “If I were king for a day”, he would go for President Obama’s $33 billion tax credit program, the bigger plan.
Senators admit their proposals are “modest.” Schumer said, “This is not a panacea – I would not try to sell it as that. We have to be careful here and thread the needle.” According to the Washington Independent, Zandi said that while the economy is recovering, the job market is not self-sustaining. Schumer promised, “The one thing you can be assured of is that there will be more.” According to The Economist, Senator Reid hopes to pass other measures that will total $80 billion that will include aid to states and unemployment benefits.
The Los Angeles Times characterizes the Schumer-Hatch plan as a “bad version of a job-creation tool that is only marginally effective.” The newspaper’s editorial board noted, “The basic problem with giving tax incentives to employers is that you end up rewarding companies for moves they were going to make anyway.” The LA Times believes these job creation tax credits should be utilized in a way to spur hiring, “for example, by making a limited amount of credit dollars available on a first-come, first-served basis.”
Andrew Reschovsky, an economist at the University of Wisconsin-Madison, told the Milwaukee Journal Sentinel that there should be more of an emphasis on unemployment benefits and federal help to the states because the tax credits are “not enough, given the magnitude of the nation’s economic problems.” Abdur Chowdhury, an economist at Marquette University, believes the “federal government should take steps to keep the value of the dollar low to encourage the export of American products.” James Buchen, chief lobbyist for the Wisconsin Manufacturers & Commerce said “I wouldn’t hold my breath that it’s going to solve the unemployment problem.” He would prefer to see across the board cuts in corporate taxes so that American products are more competitive overseas.
CONCLUSION
When the Senate passed its version of the jobs bill, Senator Barbara Boxer said, “Today, jobs triumphed over politics.” Now, the House and Senate must each negotiate to reconcile their different bills. The two bills on Capitol Hill are aimed at helping Americans get back to work. Whether the infusions of cash or the tax credits are the answer, remain to be seen. The politicians in Washington are in the throes of an election year and know that the voters are expecting them to do something about the oppressively high unemployment rate. Senator Scott Brown, R-MA, voted with the Democrats and said, “It is the first step in creating jobs, not only for the people of Massachusetts but for the people of the country.”
SOURCES
“Millions of Unemployed Face Years Without Jobs”, New York Times, February 21, 2010
“Deal on Jobs Shows Limits of Push for Bipartisanship”, New York Times, February 12, 2010
“Senate Dems Scrap Bipartisan Jobs Bill”, CBS News, February 12, 2010
“Jobs Bill Could be a Bust, Experts Warn”, CBS News, February 11, 2010
“Why Harry Reid is Stripping Down Jobs Bill”, ABC News, February 14, 2010
“A Jobs Bill Too Small for the Task”, Washington Independent, February 18, 2010
“Bogged Down: The Latest Victim of Senate In-Fighting”, The Economist, February 18, 2010
“Tax Breaks for Jobs Must be Done Right”, Los Angeles Times, February 20, 2010
“Democratic Governors Urge Passage of Jobs Bill as Debts Loom”, Business Week, February 21, 2010
“Senate Job Bill Gives Employers Tax Credits for New Workers”, Milwaukee Journal Sentinel, February 21, 2010
“In Passage of Jobs Measure, a Glimpse of Bipartisanship”, New York Times, February 22, 2010
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