What Is Needed to Spur Job Creation?

Under normal economic conditions, Washington should not manipulate taxes and spending based on short-run job creation. Instead, it should maintain fiscal balance and low marginal tax rates to promote long-run growth. The Keynesian function of boosting demand during downturns and restraining it during upturns should normally be left to the automatic fiscal stabilizers and the Federal Reserve.

Of course, recent conditions have been anything but normal, as an unusually severe recession has left 15 million people jobless and the Fed has been handcuffed by its inability to reduce interest rates below zero. Congress adopted stimulus packages in February 2008 and February 2009 to boost demand and there are now calls for a third stimulus.

The economic boost from another stimulus is likely to be limited, particularly if the Fed responds by moving interest rates back above zero more quickly than it otherwise would. Although the pace of upcoming job gains will be slow, the government can't do very much to accelerate it. But, it can provide a much-needed safety net by extending emergency unemployment benefits.

If we adopt a third stimulus, it should focus on incentives to speed up economic activity. Extending bonus depreciation for equipment investment could do some good, at little revenue cost. A tax break for new hiring, which has support in both parties, could also help. The tax break should not be restricted to small firms, as big firms are equally effective in creating jobs. To avoid issuing more debt, the third stimulus should be financed by recapturing infrastructure money not yet spent from the second stimulus.

Alan D. Viard is a resident scholar at AEI.

Photo credit: iStockphoto/Slobo Mitic

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About the Author

 

Alan D.
Viard
  • Alan D. Viard is a resident scholar at the American Enterprise Institute (AEI), where he studies federal tax and budget policy.

    Prior to joining AEI, Viard was a senior economist at the Federal Reserve Bank of Dallas and an assistant professor of economics at Ohio State University. He has also been a visiting scholar at the US Department of the Treasury's Office of Tax Analysis, a senior economist at the White House's Council of Economic Advisers, and a staff economist at the Joint Committee on Taxation of the US Congress. While at AEI, Viard has also taught public finance at Georgetown University’s Public Policy Institute. Earlier in his career, Viard spent time in Japan as a visiting scholar at Osaka University’s Institute of Social and Economic Research.

    A prolific writer, Viard is a frequent contributor to AEI’s “On the Margin” column in Tax Notes and was nominated for Tax Notes’s 2009 Tax Person of the Year. He has also testified before Congress, and his work has been featured in a wide range of publications, including Room for Debate in The New York Times, TheAtlantic.com, Bloomberg, NPR’s Planet Money, and The Hill. Viard is the coauthor of “Progressive Consumption Taxation: The X Tax Revisited” (2012) and “The Real Tax Burden: Beyond Dollars and Cents” (2011), and the editor of “Tax Policy Lessons from the 2000s” (2009).

    Viard received his Ph.D. in economics from Harvard University and a B.A. in economics from Yale University. He also completed the first year of the J.D. program at the University of Chicago Law School, where he qualified for law review and was awarded the Joseph Henry Beale prize for legal research and writing.
  • Phone: 202-419-5202
    Email: aviard@aei.org
  • Assistant Info

    Name: Regan Kuchan
    Phone: 202-862-5903
    Email: regan.kuchan@aei.org

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