Gravelle Senior Specialist in Economic Policy
Thomas L. Hungerford Specialist in Public Finance
Linda Levine Specialist in Labor Economics
and deepest recession since the Great Depression ended and an expansion began
in June 2009. Although output began to grow in the third quarter of 2009,
the labor market was weak in 2010, with the unemployment rate averaging
9.6% for the year. Despite showing greater improvement toward the end of
2011, the unemployment rate averaged a still high 8.9% for the year. The
labor market has continued to slowly strengthen in 2012, with the unemployment
rate in January and February measuring 8.3%.
Several policy steps were taken after the economy entered the Great Recession,
including stimulus bills in 2008 (P.L. 110-185) and 2009 (P.L. 111-5), an
unprecedented expansion in direct assistance to the financial sector by
the Federal Reserve, and the Troubled Asset Relief Program (TARP; P.L.
110-343). In December 2010, P.L. 111-312 extended the 2001 and 2003 “Bush” income
tax cuts through 2012 as well as other expiring tax provisions and emergency unemployment
benefits through 2011. The Tax Relief, Unemployment Reauthorization, and Job Creation
Act also cut the payroll tax by two percentage points until the end of 2011.
Continued high unemployment has led to concerns about the need for additional
policies to promote job creation. The President proposed a stimulus
package in September 2011—the American Jobs Act—which was introduced by
request in the House (H.R. 12) and Senate (S. 1549). The two percentage
point payroll tax cut that was due to expire at the end of 2011 was extended
into early 2012 as part of the Temporary Payroll Tax Cut Continuation Act (P.L.
112- 78). As agreed to by a conference committee in February 2012, the
Middle Class Tax Relief and Job Creation Act (P.L. 112-96) includes among
its provisions extending the payroll tax cut and emergency unemployment
benefits through 2012.
This report considers three policy issues: whether to take additional measures
to increase jobs, what measures might be most effective, and how job
creation proposals should be financed. Most proposals discussed as part of
a potential additional macroeconomic jobs bill are traditional fiscal stimulus
policies. Their objective is to increase total spending in the economy
(aggregate demand) either through direct government spending on programs
or by providing funds to others that they will spend (through tax cuts,
transfer payments, and aid to state and local governments). Proposals for
employment tax credits are different from traditional fiscal policies in that
their objective is to directly increase employment through a subsidy to
To be effective, fiscal stimulus is generally deficit financed. Although a
stimulus measure could be paid for by cutting other spending or raising
other taxes, these financing options will offset the stimulative effects
on aggregate demand. It is possible to choose a deficit-neutral package of tax and
spending changes that would stimulate aggregate demand if some types of
measures induce more spending per dollar of cost than others, but such an
effect would likely not be very large. The choice of financing affects
both the macroeconomic impact and the cost-benefit tradeoff of the policy
proposal. If such an effective stimulus package could be designed, it would
have the advantage of not exacerbating the challenges of a growing debt.
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