Employment Bill Called ‘Corporate Giveaway’
Rep. Lloyd Doggett (D-Texas)
Last week, as House Democrats took to the floor with near-unanimous praise for legislation to help the unemployed and stimulate the fragile economy, Rep. Lloyd Doggett (D-Texas) offered a wildly different assessment.
“This bill,” he said, “represents a textbook example of how not to deal with the economic challenges that our country faces.”
[Economy1]The Texas Democrat wasn’t talking about the extension of unemployment benefits at the heart of the bill, but an amendment providing the nation’s businesses — even the largest corporations — with tens-of-billions of dollars in tax rebates to stem recent losses. That provision, Doggett claimed, is less an economic stimulant than it is “a corporate giveaway” at the expense of taxpayers. It didn’t help the congressman’s mood that the Democrats’ bill allocates more than four times the funding to the business tax than it does to extending unemployment insurance.
“Today’s bill allocates $2 billion to the winner and $10 billion to the loser,” he said.
Indeed, although the jobless benefits are the centerpiece of the Democrats’ bill, they represent a mere $2.4 billion of the spending, according to the Congressional Budget Office — or just 10 percent of the $24 billion proposal. Nearly half of the money — $10.4 billion — will go toward the so-called loss carry-back extension, which will allow businesses, both large and small, to apply any losses suffered in 2008 and 2009 to income made in the previous five years, three years longer than current law allows. The result will be tax refunds topping $33 billion next year, according to the Joint Committee on Taxation.
Yet another amendment, to extend a popular $8,000 tax credit for new homebuyers, will cost $10.8 billion over a decade, JCT estimated.
Supporters of the two tax breaks — including Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Committee Chairman Max Baucus (D-Mont.), the bill sponsors — argue that they’ll help prop up businesses in the midst of the worst unemployment crisis in 26 years.
Yet an analysis of a similar bill by Mark Zandi, chief economist at Moody’s Economy.com, indicates that, in terms of bang-for-the-buck, the lopsided allocations in the stimulus bill are dubious. Indeed, for every dollar spent on the business tax rebate, just 21 cents are returned to the larger economy, according to Zandi. By contrast, the homebuyer tax credit returns 90 cents on the dollar, he found, while the unemployment extension returns $1.61.
Heidi Shierholz, economist at the liberal Economic Policy Institute, said that there’s “no economic rationale” for the business tax rebate. “For whatever reason that [provision] got in there,” she said, “it has nothing to do with stimulating the economy.”
At the start of the debate, it wasn’t in there. Indeed, when the House passed its unemployment extension bill in September, the $1.2 billion proposal stood alone. It was in the Senate, after weeks of delay over controversial amendments, that Democratic leaders decided to sweeten the pot by adding the two tax breaks. Leading up to the upper-chamber vote, Sen. Tom Harkin (D-Iowa) explained the Democrats’ position.
“The two were put together as a means of greasing the skids,” Harkin told the Huffington Post last week. “You know how things work around here. Could we have gotten UI through otherwise? Yes, we could have, but it would have taken us several days. And we don’t have that kind of time. And the minority is then able to, because of the time, demand certain things.”
Meanwhile, the nation’s unemployment rate jumped to 10.2 percent in October — the first time it’s topped 10 percent since 1983. When those who have stopped looking for work are considered, that number tops 17 percent.
Washington Post business columnist Steven Pearlstein, a Pulitzer Prize winner, said the carry-back provision, far from an effective stimulus strategy, will merely “delay the inevitable downsizing and consolidation of these industries.”
“The perverse effect,” Pearlstein wrote, “will be to reward the companies that failed to pay down debt and squirrel away cash when times were good and, by artificially keeping them alive, punish the competitors that did.”
Even some conservative economists are doubting the stimulating effect of the loss-carry back provision. Desmond Lachmann, economist at the American Enterprise Institute, said the $33 billion spent next year is simply too small, relative to the larger economy, to stimulate much growth.
“We are talking about 0.2 percent of GDP,” he said.
Doggett took a harsher angle, accusing his colleagues of rewarding the very companies that caused the recent downturn.
“This bill,” Doggett said, “now directs the Treasury to essentially write a check directly to corporations for more than $10 billion — checks to corporations that have committed fraud, checks to corporations that have no ability to create jobs because they have no employees and exist solely on paper as a fiction. It rewards some of the very corporate losers who have brought us to the brink of economic ruin.”
On Friday, President Obama signed the measure into law.