Employing a fresh approach to jobs

Douglas Holtz-Eakin Former Director, CBO
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It should be clear by now that everyone agrees that jobs are the No. 1 one issue facing America. Over 7 million have disappeared from the economic landscape since the beginning of the recession. The official unemployment rate is 10 percent, while a broader measure that also includes discouraged and part-time workers stands at 17.3 percent. The private sector firm ADP estimates that another 22,000 job disappeared in January. A weary populace awaits the latest official round of bad news out of the Labor Department on Friday.

To the extent that there is any good news, it is that employers seem to have stopped firing. There is, however, no evidence that they have begun to hire or even contemplate expanding payrolls in a significant fashion. The diagnosis of what ails job creation divides sharply, however.

Liberals argue that the so-called stimulus has simply been insufficient despite—its $900 billion price tag. They argue for more federal spending slanted toward what they deem to be “good jobs” for favored sectors of the economy, like education, “green” technologies, and health care.

Conservatives argue that in fact Democrats have not made jobs the nation’s top priority. Instead, the administration pushed ahead with a domestic agenda that includes the promise of higher taxes, job-killing mandates, big-government health care, draconian regulation, easier unionization of the workplace, restrictive trade policies, and looming budget deficits as far as the eye can see. With that on the horizon, it’s no small wonder that entrepreneurs and small businesses are unwilling to start hiring.

The result has been gridlock that has frozen the prospect of getting employers hiring again. There is, however, a breath of fresh air on the jobs policy front. Sens. Orrin Hatch (R-Utah) and Charles Schumer (D-N.Y.) have a bipartisan proposal that is not more big-government spending, but rather about providing a tax cut to tackle unemployment in America. Specifically, they propose that any business that hires an unemployed worker will not have to pay the employer’s share of Social Security taxes on that worker for the remainder of 2010. The quicker the business makes a hire, the greater the total benefit. In addition, if the worker remains on the payroll for a full year the employer will receive a $1,000 bonus.

It’s a sensible step. The payroll tax is the largest tax paid by the majority of Americans, and is a major impediment to hiring. Reducing this tax sends the right signal—and right incentives—for employers and workers alike.

Critics will argue that this proposal is not perfect, and they’re right. Permanent tax relief would be far better. But let’s be honest, with Democrats controlling the White House, the House and Senate, the chances of that are slim. Similarly, it would be better if the reduction applied to all hiring, not just out of the ranks of the unemployed. But it makes sense to include some constraints to prevent a gaming of the system, which would waste valuable and limited taxpayer dollars.

The proposal is not out of the dangerous Congressional woods. Going forward, it is essential that the cost be offset by deficit reductions in years after 2010, so as not to exacerbate the budget outlook. In addition, there is always the risk that a high-priority bipartisan initiative could turn into a vehicle for all manner of pet projects, earmarks, wasteful spending, and other ornaments that would transform the effort from a job-creator into a legislative Christmas tree that puts further burdens on the economy.

The United States has grown to be the most powerful economic force in history, because of the ingenuity of its people—not the government. The economy will never be successfully run from the banks of the Potomac. But there are moments, when policy makers can find ways to aid economic recovery. This is one of those moments and the Hatch-Schumer proposal is a breath of political fresh air and sensible help for those desperately seeking jobs.

Douglas Holtz-Eakin is president of the American Action Forum, a center-right policy institute in Washington, D.C. He has a distinguished record as an academic, policy adviser, and strategist. He is also a commissioner on the Congressionally-chartered Financial Crisis Inquiry Commission.