Jane G. Gravelle Senior Specialist in Economic Policy
Thomas L. Hungerford Specialist in Public Finance
Linda Levine Specialist in Labor Economics
longest and deepest recession since the Great Depression ended and an expansion
began in June 2009. Although output started growing 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 September through December dipping below 8.0% for the
first time since January 2009.
Several policy steps were taken after the economy entered the Great Recession.
They include 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.
In December 2010, after the recession had ended, 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 through 2011. The payroll tax cut subsequently
was extended into early 2012 as part of the Temporary Payroll Tax Cut
Continuation Act (P.L. 112-78) and again through 2012 as part of the
Middle Class Tax Relief and Job Creation Act (P.L. 112-96), which also
extended emergency unemployment benefits.
Most recently, attention had focused on the upcoming significant increase in
taxes and decrease in spending popularly referred to as the “fiscal cliff.”
Economic projections had suggested that these policies would have
dramatically slowed growth and perhaps lead to a recession in the first part of
2013. The American Taxpayer Relief Act (P.L. 112-240) eliminated somewhat more
than half the fiscal cliff, but fiscal policy remains contractionary for
2013 as compared with 2012 and could cause growth to slow by one to two
percentage points compared to what otherwise have been the case.
For that reason this report addresses 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 that have been discussed in the past 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 labor costs.
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.
Date of Report: January 10, 2013
Number of Pages: 18 Order Number: R41578 Price: $29.95
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