Our guest blogger is Seth Hanlon, Director of Fiscal Reform at the Center for American Progress Action Fund.
The House GOP has scheduled a vote for later today on a $46 billion tax giveaway. H.R. 9, sponsored by Majority Leader Eric Cantor (R-VA), would give a massive, deficit-financed windfall to hedge fund managers, sports team owners, celebrities and other wealthy people. It would increase tax compliance burdens on small businesses and actually incentivize businesses to put off making investments and new hires until 2013 or later. (For our full analysis, click here.) The White House has issued a veto threat.
In arguing that his bill would create jobs, Cantor is now touting an analysis by Gary Robbins of Fiscal Associates. Robbins, a leading purveyor of supply-side economics for decades, appears to be the only economist that Cantor could find to help sell his bill. Robbins was last heard from using recycled supply-side arguments to sing the praises of Herman Cain’s tremendously ill-conceived “9-9-9” tax plan as a paid consultant to the Cain campaign.
So if anyone is likely to conclude that Cantor’s tax cut is a good way to create jobs, it’s Robbins. But even his analysis finds that Cantor’s bill is a dud.
Robbins predicts that Cantor’s tax cut — a one-year, 20 percent deduction for businesses that qualify — would add $42.6 billion to the federal budget deficit. (That’s a little less than Congress’s official estimate of $46 billion because Robbins’ revenue estimates are based on his own assumptions about economic growth.) Robbins also estimates that such a one-year tax cut would create 39,000 jobs. So according to the analysis that Cantor is touting on his own website, H.R. 9 would increase the federal deficit by $1.1 million for every job created.
That number is staggering, especially considering that this is the best analysis that Cantor could find. In fact, House Republicans once took aim at President Obama’s American Recovery and Reinvestment Act with the false claim that it cost $278,000 per job. And Robbins’ analysis of H.R. 9 compares terribly with estimates of other approaches to creating jobs. Policies that the House GOP held up for months, including the payroll tax holiday and extension of unemployment benefits, provide much more “bang for the buck.”
Robbins’ dim view of the Cantor bill is shared by more mainstream economists. The Congressional Budget Office estimated last year that temporary tax cuts on business income are among the least effective ways to create jobs, increasing employment in 2012 by at most one job per $1 million in budgetary cost. In its macroeconomic impact analysis, the Joint Tax Committee concluded that H.R. 9’s effects “are so small as to be incalculable.”
Former Reagan official Bruce Bartlett, who has advocated for plenty of supply-side policies over the years, adds that the Cantor bill “will do nothing whatsoever to increase employment” because it ignores the real problem facing small businesses — weak demand for their products and services. A tax windfall for wealthy people is among the worst ways to boost the economy because they are the least likely to spend the extra cash.
To be sure, Robbins predicts that if Cantor’s special tax break were made permanent, it would have wondrous economic effects. This is not surprising, given that his models predicted the same of other proposals giving massive tax cuts to the rich, such as Cain’s 9-9-9 plan and George W. Bush’s tax policies.
But Cantor’s bill is simply a one-time, one-year windfall for rich people that if repeated, would blow an even bigger hole in the budget. It’s a costly and ineffective giveaway even according to the lone analysis Cantor is touting. Bottom line: H.R. 9 is a loser no matter whom you ask. Not even voodoo economics can save it.