House Recovery Act Creates More Jobs than Senate Compromise
*Read "House Recovery Act Creates More Jobs than Senate Compromise" for the most up-to-date numbers and state-by-state chart.
Read also: Getting the Economic Recovery Bill Right
The Senate compromise recovery and reinvestment legislation provides for 12 to 15 percent fewer jobs created or saved than the House-passed Recovery and Reinvestment Act despite costing slightly more. The House-passed legislation creates or saves between 430,000 and 538,000 more jobs than the Senate compromise.
As outlined by Michael Ettlinger in “A Step Forward, a Stumble Back,” the greater job creation in the House bill is because the balance is more focused on investment programs than on less effective tax cuts. The reverse is true in the Senate compromise which, among other tax measures, includes a patch to the Alternative Minimum Tax that will not be as stimulative as investments in infrastructure or fiscal help to states that the compromise pares back.
The 12 percent to 15 percent range reflects different estimates for the effectiveness of different provisions. Three sets of estimates were used: Congressional Budget Office “pessimistic” estimates, CBO “optimistic” estimates and the widely cited estimates of Moody’s Economy.com chief economist Mark Zandi. Using the CBO pessimistic estimates, the Senate compromise produces 538,000 fewer jobs than the House-passed legislation. Using the CBO optimistic estimates, the Senate compromise produces 430,000 fewer. Using the Mark Zandi figures, the Senate compromise produces 441,000 fewer jobs.
The consequences of this lower job creation go beyond the immediate impact of the recovery plan to the labor market. The recovery and reinvestment legislation as passed by the House was designed not just to create jobs through spending but also to put the economy on an upward trajectory where the private sector is once again creating jobs without the aid of intensive government intervention. The compromise necessitated by conservative influence in the Senate weakens the ability of the package to achieve that aim.
To calculate the relative job-creating and savings potential of the House American Recovery and Reinvestment Act and the Senate compromise, we assigned multipliers to every budget line in both the $820 billion House version that passed on January 28, 2009 and the $827 billion Senate compromise (the $780 billion package that was negotiated plus the home and auto purchaser tax credits).
We used recently published CBO multiplier ranges, and also the much cited Zandi multipliers. Where it was not possible to assign a Zandi multiplier for a general spending measure, we used generic eight-quarter Romer/Bernstein multiplier numbers, which are 1.57 for government purchases and 0.99 for tax cuts.
To calculate the difference in jobs created between the House bill and the Senate compromise, we applied the percent differences in job creation that the respective size and composition of the packages imply to the original Romer/Bernstein projection, which presumed that the House Recovery and Reinvestment package would create or save 3,675,000 jobs.
More on economic recovery from CAP:
Column: A Step Forward, a Stumble Back
Interactive Map: Beyond the Beltway: Helping Those Most in Need
Interactive: Build Your Own Stimulus Package
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