New Jobs Program Coming?

Anne Kornblut and Lori Montgomery report on White House plans for a new jobs push and what ideas are under consideration:

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States. [...] More spending on infrastructure, particularly transportation projects, is also under discussion. But it would be easier for a package composed purely of tax cuts to “avoid the stain of a ‘bailout’ or ‘stimulus’ label,” said one official familiar with the talks, speaking on the condition of anonymity because the deliberations were private.

Permanent extension of the R&D tax credit may or may not be a good idea, but it ought to have almost no stimulative impact. A payroll tax cut, by contrast, could be very helpful. For indebted, employed households it would allow them to deleverage more quickly. For not-so-indebted employed households, it would boost income and thus should boost consumer spending to some extent. And for employers considering hiring some new people, it will reduce the cost of labor and thus the marginal propensity to hire. The fly in the ointment is the potential impact on the divided FOMC. If a big payroll tax cut inspires wavering FOMCers to freak out about deficits and turn more hawkish, then we’ll have accomplished nothing.

I also note that the “official familiar with the talks” reflects the continuing poor state of understanding about how the political system works. If you spend $400 billion on an unpopular but effective jobs programs, you’ll reap political benefits in the medium-term. If you spend $400 billion on a popular-sounding jobs program that doesn’t work, you’ll reap the whirlwind in the medium term. Recall that at the time the American Recovery and Reinvestment Act was signed, Barack Obama was incredibly popular. His ratings have slipped because the results haven’t matched policymakers’ hopes.