Debate on Necessity of Additional Stimulus

Oct 7, 2009

In response to high unemployment numbers, the Obama Administration is discussing the idea of a tax credit for employers that create new jobs. House Republican whip Eric Cantor demonstrated the likely broad bipartisan appeal of this type of a tax credit by saying, “There is a lot of traction for this kind of idea. If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.” 

While the details have not been hammered out yet, one version of the policy would provide a tax credit to employers who either increased their workforce or added hours for employees. The federal government attempted a tax credit such as this in the late 1970s, and though employment rose, it was unclear how many of those jobs would have been added anyway.

Speaking of spending to reduce unemployment, CRFB President Maya MacGuineas is engaging in a three-day debate in the Los Angeles Times with Dean Baker from the Center for Economic and Policy Research. The first installment today (it runs through Friday) covered the topic “Do we need another stimulus?” Citing Keynes, Baker argued that “Without a further boost to the economy… it will be almost five years until the unemployment rate falls to the level that prompted the first stimulus.” He noted his belief that the true benchmark for telling when an economy has recovered from a recession is when it is back to “its full-employment level of output.”

MacGuineas said that while the news on the jobs front is bad, and that this is shaping up to be a “jobless recovery,” the economy will have to be growing before job growth comes back.” Citingthe importance of weighing the advantages of any additional spending along with the disadvantages that come with adding even more to the deficit, MacGuineas said:

“Luckily, I don't think the overall economic picture calls for additional stimulus measures at this point. Furthermore, keep in mind that only about one-fourth of the money from this year's $787-billion stimulus package has been spent. Hundreds of billions of dollars more will be poured into the economy this coming year, hopefully in a manner that helps spur job growth. But doing more than this could jeopardize the recovery if creditors and markets turn against us because of fears about the precarious fiscal position of the country.”