American Jobs Act Will Produce Few Jobs

September 23, 2011

The American Jobs Act includes more than $250 billion in tax credits and incentives that are intended to induce more hiring and spur more consumer and business spending.  The remainder of the package is dedicated to new spending on infrastructure and "make-work" projects, says David S. Logan, an economist at the Tax Foundation.

However, a review of the academic literature on these sorts of tax policies suggests that they will have little, if any, impact on spurring job creation or aggregate demand.

  • Indeed, because these temporary tax measures would be offset by some $460 billion in permanent tax increases, the whole package could actually do much more economic harm than good.
  • The Act's various incentives and a review of the economic research suggests that "jobs" incentives tend to be ineffective in spurring new hiring, while the three most recent "demand-side" tax cut plans failed to induce new consumer spending.
  • The business-expensing provision, while a good idea, will only have a modest impact on economic growth because of its temporary nature.
  • Additionally, while it is likely that the tax incentive portion of President Obama's plan would deliver few jobs and little economic growth, the permanent tax increases that "pay for" the tax cuts can do permanent harm to the economy.

Lawmakers should stop trying to jumpstart the economy in the short run and begin crafting policies that set the country on a long-term growth path.  The economic evidence suggests that cutting our corporate and personal income tax rates while broadening the tax base would greatly improve the nation's prospects for long-term gross domestic product growth, while helping to restore Washington's fiscal health.  More importantly, these measures will lead to higher wages and better living standards for American citizens.  And that should be the number one priority of any tax policy. 

Source: David S. Logan, "Academic Research Suggests that the American Jobs Act Will Produce Few Jobs," Tax Foundation, September 19, 2011.

For text:

http://taxfoundation.org/publications/show/27632.html#_ftn1

 

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