Seeking to Grow Jobs, Not the Deficit

[Omaha Steve]

http://www.businessweek.com/bwdaily/dnflash/content/nov2009/db2009116_475022.htm

As U.S. unemployment officially passes 10%, the White House is challenged to create jobs without adding to the $1.4 trillion federal deficit

By Moira Herbst



The national unemployment rate for October reached 10.2 percent, the highest level since 1983. An estimated 16 million Americans are out of work. Justin Sullivan/Getty Images

A greater-than-expected rise in the October U.S. unemployment rate, released Nov. 6, makes all the more clear that the U.S. could be facing a painful jobless recovery. At 10.2%, the jobless rate has increased 3.6 percentage points from a year ago. It has doubled since March 2008.

With every uptick in the unemployment rate, Congress and the Obama Administration face more pressure to bolster job growth. They are also under constant criticism for the high level of federal spending and rising federal budget deficit—especially from Republicans, but also from Democrats in conservative districts. (The deficit reached $1.4 trillion in fiscal 2009 and racked up its highest percentage of U.S. gross domestic product since 1945.) The question from here will be how to balance those competing political pressures, especially in the runup to the 2010 midterm elections.

The White House is keen to show that it is taking steps to stimulate the economy and cushion the blow to jobless Americans. That was made clear Nov. 6, when President Barack Obama signed into law a bill that both provided tax incentives to new home buyers and extended unemployment benefits for an additional 20 weeks. Obama said the $10.8 billion home buyers' tax credit would be offset by tax revenues raised by delaying a tax break for multinational corporations that pay foreign taxes. The cost of the unemployment benefit extension, about $2.4 billion, will be covered by extending a federal unemployment tax to employers.
New Employment Proposals: Expensive

In signing the legislation, Obama said: "Now, it's important to note that the bill I signed will not add to our deficit. It is fully paid for and so it is fiscally responsible. I promise I won't rest until America is prosperous once again."

The White House and Congress have floated a number of ideas to spur job growth in recent months. One would offer tax credits for employers that create new jobs, an idea that was also considered for inclusion in the $787 billion stimulus bill passed last winter. Under one version, an employer would receive a tax credit of $8,000 in the first year of a new job and $5,000 in the second year. But these proposals have failed to gain traction, in part because they would be costly to implement.

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