“The entire plan will not add one penny to the federal debt, while creating 5 million new jobs.”
--news release by Sen. Rand Paul (R-Ky.) about the Senate GOP jobs plan
“Paul said the bill would create 5 million new jobs—although he did not offer a specific time frame.”
--news article on unveiling of the plan, Oct. 14, 2011
Politicians love to make claims about how many jobs their proposals will create. As a practical matter, readers should immediately discount such assertions, since they are often based on guesstimates that are then extrapolated beyond reality. One good example of such a dubious claim is one made by Senate Majority Leader Harry Reid in August about the Federal Aviation Administration funding bill, for which he earned Three Pinocchios.
But the current battle over the jobs bills is, of course, about jobs. President Obama has toured the country, making the case for his plan while frequently citing an estimate by one economist that nearly 2 million jobs would be saved or created. Bloomberg News surveyed 34 economists and came up with a decidedly smaller average – the plan would “add or keep 275,000 employees on payrolls.” Still, the economists concluded the president’s plan might help avoid a recession in the next year.
Senate Republicans, including Rand Paul (Ky.), John McCain (Ariz.) and Rob Portman (Ohio), last week unveiled what they labeled as their alternative to Obama’s plan. Their plan was mostly a mish-mash of previous offered bills, such as that hardy perennial--a balanced budget amendment to the constitution. (Some experts would argue that such a requirement could hurt employment if government spending dropped too quickly.)
During the news conference, and in a news release, Paul claimed the GOP plan would create 5 million jobs
So, we wondered: Where did that figure come from?
Moira Bagley, a spokesman for Paul, said the figure was derived from three proposals: individual and corporate tax cuts that reduced the top tax rate of 25 percent, which the Heritage Foundation said would boost employment by 1.6 million jobs over the next decade; a tax holiday allowing U.S. companies to return cash held overseas, which a Chamber of Commerce study said would create 2.9 million jobs in two years; and a study by energy consultant Wood MacKenzie, which said allowing access to domestic energy resources and imports of Canadian oil would generate more than 1 million jobs by 2018.
There are several problems with these figures.
First of all, the tax reductions and the energy proposals are going to do very little in the near term. The Heritage study looks at the impact over ten years. And, let’s face it, a project as big as reducing tax rates will take months, if not years, of legislative battles. Such a tax plan certainly won’t do anything to avert a recession right now. (In any case, we raised serious questions about aspects of the Heritage analysis when it was released earlier this year in conjunction with the House Republican budget plan.)
The same problem holds true for the energy proposal—a long-term fix that will not bring much near term help. Incidentally, this same study, which has been promoted by the American Petroleum Institute, was recently the subject of a front-page Washington Post article about the “fuzzy math” on jobs used by corporate lobbying interests.
“Many economists say the API has exaggerated the number of jobs linked to the oil and gas industry by including direct and indirect jobs (such as steel suppliers), and a seldom-used category known as ‘induced’ jobs that API says covers everything from valets to day-care providers, from librarians to rocket scientists,” the article said.
That leaves the Chamber of Commerce study on a proposed tax holiday, officially known as repatriation. It certainly has a big figure—2.9 million jobs—and it was written by a credible economist, Douglas Holtz-Eakin, former director of the Congressional Budget Office. But this is not a slam-dunk issue; some experts say the last time this was tried, in 2004 and 2005, firms simply gave the money to shareholders as dividends or bought back stock, rather than creating jobs.
For the study, Holtz-Eakin surveyed firms to try to figure out what they would do with the funds, but he admits he did not get much of a response. (He received information from ten firms, which the survey says is “best characterized as anecdotal.”) Then using the same methodology the CBO used to calculate the impact of Obama’s stimulus law, he tried to calculate the number of jobs that would be created.
The result was a very wide range, of which 2.9 million jobs was the midpoint. “Quite frankly, it is educated guesswork at best,” Holtz-Eakin said in an interview.
It’s certainly ironic that Senate Republicans cite a study that uses the same methodology that calculated successful job growth in the stimulus bill. Republican lawmakers frequently decry the stimulus as a failure, but the CBO found that it added or saved between 1.9 million and 4.9 million jobs in 2010.
“I have never been saying the stimulus did not do anything,” Holtz-Eakin noted. “If you put $1 trillion in the economy, it has got to do something.”
Bagley, Paul’s spokeswoman, did not respond to any questions concerning the appropriateness of citing these studies.
The Pinocchio Test
The 5 million figure cited by Paul, and echoed by other Republicans, is ludicrous. Even if one accepts the studies that came up with the figures, in most cases they indicate the GOP proposals would do little to create jobs in the near future.
The one exception is repatriation, but Republicans can’t have their cake and eat it too. If they are so convinced that Obama’s stimulus was a failure, they shouldn’t cite a study that uses a methodology that concludes the stimulus was a success.