Tuesday, February 09, 2010

Obama Plan: The Jimmy Carter Jobs Credit

The Jimmy Carter Jobs Credit
Congress's latest stimulus idea is a bust from the past.

See Wall Street Journal editorial Feb 10, 2010 at http://online.wsj.com/article/SB10001424052748704820904575055394016616742.html?mod=WSJ_newsreel_opinion

"Stimulus Plan A didn't work to create jobs or reduce unemployment. That was the $165 billion of tax rebates and money for states in February 2008.

Plan B flopped too. That was last February's stimulus that has devoted $862 billion into mostly government programs. The unemployment rate climbed steadily until last month, and the main lasting impact has been nearly $1 trillion added to the national debt.

Now comes Plan C, another February stimulus, though this time everyone has been instructed not to use the "s word," lest it scare the voters. This one is a "jobs bill," as if Plans A and B were about something else. Don't expect this one to work any better than the last two.

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Associated Press

Former President Jimmy Carter
.This latest Senate Democratic bill will cost $85 billion and is shaping up to be largely a rehash of last year's stimulus: extended unemployment insurance, Medicaid cash for the states, and some public works spending. The one new twist is a proposal for a one-year $5,000 tax credit for small businesses for each new worker hired. President Obama calls the credit "the best way to cut taxes" to help small businesses.

But we've also seen this economic movie before—in 1977 under Jimmy Carter. During the two years it was in effect, a jobs credit worth about $7,000 in today's dollars became a $20 billion free lunch as businesses claimed the handout for one of every three new employees.

In the short term, the Jimmy Carter jobs credit appeared to reduce unemployment. The jobless rate dropped by 1.2 percentage points (to 5.8% in 1979 from 7% in 1977). But that effect was short-lived, and when the subsidies ended two years later the layoffs resumed and the unemployment rate rose again and by 1980 was back to 7.2%."

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