Since the start of the Great Recession in December 2007, the U.S. economy has shed 7.8 million jobs. Unemployment remains stuck at just below 10 percent, and millions of people have given up hope of finding work. Fortunately, there have been some recent signs of improvement. The economy added nearly 500,000 new jobs over the past two months, and we’ve now enjoyed four consecutive months of positive job creation. But progress on the jobs front is neither fast enough nor robust enough to help our economy recover.
To be sure, existing job creation measures, especially the American Recovery and Reinvestment Act, are certainly doing their part. But the direct boost of the stimulus act is now beginning to subside. More should be done to consolidate the current gains our economy is now displaying so that more people can get back to work and spur a stronger recovery.
Unfortunately, budget deficit hysteria stands in the way of Congress pursuing additional job creation measures. Obviously, we are currently running a very large federal deficit, but it is not this year’s deficit or even next year’s deficit that should cause concern. Rather, it is the long-term, persistent deficits that really should be the focus of everyone’s attention. Policies that might increase this year’s deficit in the service of growing the economy and boosting job creation will actually make solving the more critical long-term deficit problem much easier.
The reason: Stronger economic growth over the next year or so will spark greater tax revenues and lower spending on social safety net programs such as unemployment compensation. Yet misguided congressional concern about running near-term budget deficits makes it legislatively and politically difficult to pass anything, even job creation measures, without finding some way to offset their costs.
Outside of Congress, however, experts of very different stripes agree that short-term deficits aren’t the real problem. Witness, for example, a recent op-ed by David Walker, the president and CEO of the fiscally hawkish Peterson Foundation, and Larry Mishel, president of the more dovish Economic Policy Institute. These two experts are hardly ideological bedfellows, yet even though they approach the issue from very different perspectives they conclude that job creation today is paramount. Walker, the quintessential deficit hawk, explicitly argues that, "We must accept higher deficits in the short-term in order to put people back to work."
Economists say not to worry about the immediate deficits, but many in Congress see it differently. That’s the political reality. So let’s turn from the economic perspective—that it is unnecessary to offset temporary spending aimed at spurring job creation—to the legislative and political perspective. Taking politics squarely into account, Congress should pass the $90 billion bank tax proposed by the Obama administration and use the proceeds to pay for additional job creation measures.
This tax on Wall Street’s biggest financial institutions is projected to raise approximately $90 billion over the next 10 years. The pay-as-you-go rules of Congress are a bit complicated, but the upshot of these rules is that the bank tax can offset about $40 billion in job creation spending this year and next. An additional $40 billion directed toward job creation can go a long way. There are several good ideas, already under consideration by Congress, that can have substantial positive effects on the job market. Specifically:
- Save the jobs of teachers, police officers, and firefighters. Over the course of the Great Recession, schools have been forced to lay off somewhere between 100,000 and 300,000 teachers nationwide. Recent reports indicate that four out of every five school districts are expecting to cut even more jobs in the coming school year. Even as the overall jobs picture brightens a bit, state and local government jobs—teachers, police, firefighters—are still being slashed. In the past three months, the overall economy added more than 500,000 jobs, but state and local governments still shed about 30,000 workers. This is neither helping our economy recover nor, obviously, these workers and their families.
- Extend the TANF Emergency Fund. Twenty-two states have already used the federal Temporary Assistance for Needy Families emergency funding to create nearly 100,000 jobs for low-income workers. These are jobs that are set to disappear if the fund expires, which it is set to do at the end of August. By extending the fund for one year, Congress can save those jobs and encourage states to continue setting up job programs for those hardest hit by the recession.
- Scale up national service programs and invest in summer jobs for youth. Among other mechanisms, modest investments in existing national service programs such as AmeriCorps, YouthBuild, and VISTA can yield impressive results. Recent estimates indicate that an additional $1.5 billion can create up to 100,000 new jobs.
- Expand and improve the Advanced Energy Manufacturing Tax Credit. The credit, first enacted in the American Recovery and Reinvestment Act, generated almost 60,000 jobs and more than $5 billion in private investment in clean energy technologies. The credit is capped at $2.3 billion, but companies applied for more than three times that amount. Congress should expand and extend the credit as well as make a few small adjustments to it in order to create thousands more jobs in the new clean energy economy.
Certainly, there are other good ideas out there to give the job market a much-needed boost, as CAP outlined in our December report, "Meeting the Jobs Challenge." These are just a few of the ideas that are getting attention and could fit within the $40 billion. From an economic standpoint, we do not need to find offsets to pay for these kinds of temporary measures, which will yield long-term benefits by boosting economic growth now. But since there is substantial legislative and political pressure to offset even temporary measures, using the proceeds from the bank tax to help spur job creation is the way to go.
In short, the bank tax presents Congress with the opportunity to move on good job creation ideas while offsetting their costs using revenues from a tax levied on the very financial institutions that helped put us in this situation. Any successful efforts to create jobs today will make closing the budget gap much easier tomorrow.
Michael Linden is Associate Director for Tax and Budget Policy at the Center for American Progress. To read more or our tax and budget analysis and learn more about our policy recommendations please go to the Tax Reform section on the Economy page of our website.
Managing Director, Economic Policy