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The Job Creation Tax Credit: Dismal Projections for Employment Call for a Quick, Efficient, and Effective Response

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[Excerpt] Given the extraordinary scope of the current economic crisis, no single policy can fully address the challenge of job creation. The American Recovery and Reinvestment Act has spurred job creation substantially, but the deterioration in economic prospects since it was passed demands a renewed focus on job growth in the near term. A well-designed temporary federal job creation tax credit should be an integral part of the effort to boost job growth. Besides having broad-based, bipartisan political support, the best argument for a job creation tax credit is simply that it will create almost 3 million jobs in 2010 and over 2 million in 2011. Moreover, it will stimulate the entrepreneurial character of Americans by giving 6.5 million employers and millions more aspiring entrepreneurs a limited-time offer to expand their production or start new endeavors, at a discount. Because choices about whom to hire and what work they should do are left to independent decision makers who can act immediately, the credit will have just as quick an impact. This paper outlines a version of this credit that aims to induce increases in payroll—either through adding new jobs or by increasing the hours or wages of current workers—and estimates its economic impact: • A job creation tax credit that refunded 15% of new wage costs in 2010 and 10% of new wage costs in 2011 could create 5.1 million additional jobs in the U.S. economy over these two years. • The net cost of the tax credit would be roughly $27 billion, or about $5,400 per new full-time-equivalent job created over these two years.

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job creation tax credit; economic growth; employment; public policy; Congress


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Required Publisher Statement: ©2009 by Economic Policy Institute. All rights reserved. Reprinted with permission.

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