How can Washington help create jobs?
By Suzy Khimm,
JAY NOLAN/ASSOCIATED PRESS The White House is promising a pivot to jobs. But pivoting doesn’t create jobs. Demand creates jobs. And two of the three ideas Treasury Secretary Timothy Geithner laid out in his op-ed this morning — the Social Security payroll tax cut and extended unemployment benefits — are already in effect. Letting them expire would hurt the economy, but simply extending them isn’t the same as adding support for a weak labor market.
But there are other ideas out there. A canvass of economists and policy analysts returned five suggestions that have, at times, enjoyed bipartisan support, and that could potentially make a real difference:
1) Infrastructure Bank: The country’s infrastructure isn’t in great shape, and the government could be more effective about spending money on new projects. Supported by the Chamber of Commerce, a bipartisan group of senators proposed a new infrastructure bank that would spur the creation of public-private projects. “There is certainly interest in improving infrastructure we have, in terms of rail, ports, etc. — firms will want to take advantage of that,” says Gus Faucher, director of macroeconomics for Moody’s Analytics. “It would be a win-win situation for economy to put some of those people to work, building stuff that would improve long-run economy.”
2) Surface Transportation Funding: The question of infrastructure funding will come up as soon as Congress returns from its August recess. A bill reauthorizing spending on surface transportation — which would help build roads, highways, and the like — is set to expire in September. There’s a big gap between the House GOP proposal, which would slash federal spending to 35 percent less than Fiscal 2009 levels, and Democratic Sen. Barbara Boxer’s two-year plan to spend $55 billion a year. Boxer’s proposal would require revenue beyond what’s in the Highway Trust Fund, which receives money from the gas tax, promising yet another fight over which will be better for the economy — reducing the deficit or Keynesian spending on infrastructure.
3) New Job Tax Credit: Democrats have vowed to push for an extension of the Social Security payroll tax holiday. But Michael Greenstone, an economist at the Brookings Institution and a former Obama adviser, has endorsed an employer-side tax credit that would specifically reward employers for hiring new employees. Being more specifically targeted for new job creation, “it would be a stronger tool than using the payroll tax cut,” says Greenstone. “It will incentivize a firm to increase their size … and it could apply to all firms.” The administration originally floated the proposal in December, but the idea got subsumed in the larger tax cut debate. Greenstone estimates that the proposal would cost $30 billion but could be scaled up or down.
4) Free Trade Deals: Lawmakers are slated to take up free-trade agreements with Colombia, Panama and South Korea, which supporters say will boost U.S. exports and competitiveness overseas. Labor unions, along with many Democrats, argue that such free-trade deals will take jobs away from Americans. But some economists say that the failure to pass the trade agreement is simply driving business — and jobs — to other countries. The White House, which backs the trade deals, claims they will create some 70,000 jobs. “They are market-opening, reducing barriers to export, for firms that pay higher wages, a lot more stable, and will create good high-wage jobs,” says Meredith Broadbent, a former deputy U.S. trade representative in the Bush administration.
5) Aid to State and Local Governments: Many states, forced by law to balance their budgets, have had to make huge, often painful budget cuts in recent months, which have trickled down to local governments. Washington is poised to pass down major spending cuts that will almost certainly squeeze the states. But some economists argue that bolstering state aid in the short-term — while making long-term reforms to reduce spending — could do a better job at bolstering creation and economic growth. Even modest help from Washington could help states through a particularly rough stretch in the economy, argues Moody’s Faucher. “States could maybe rescind some of the budget cuts they’ve already made, rehire some of the workers who’ve been laid off. And by 2013, state revenues will already be recovering.” With the expiration of the stimulus, states lost significant federal matching dollars for Medicaid, for instance. “In an ideal world, you could provide the Medicaid match in the short run and make whatever structural changes” to save money down the road, says Chad Stone, chief economist for the left-leaning Center for Budget and Policy Priorities.