Originally posted on February 23, 2010.

Yesterday, Reid’s $15 billion jobs bill passed the preliminary vote in the Senate with a 62 to 30 vote with five Republicans voting to proceed with the bill. The New York Times summarizes the bill which includes Social Security tax exemptions, tax credits and reauthorizing the highway trust fund:

The smaller measure’s centerpiece allows companies to avoid paying Social Security taxes for the remainder of 2010 on new hires who have been unemployed for at least 60 days. Employers would also get a $1,000 tax credit for each new worker who stays on the job for at least a year… Besides the payroll tax exemption, the bill would also extend a tax break, included in last year’s stimulus package, to encourage business to make capital expenditures. The provision would allow businesses to write off up to $250,000 in capital investments in 2010 rather than depreciating the costs over time. It is projected to cost the government $35 million over 10 years. The Democrats’ measure would also reauthorize the highway trust fund, providing an extension of spending on road and transit programs through the end of the year, allowing billions of dollars in projects to move ahead.

However, it is controversial whether or not these modest tax breaks will encourage businesses to hire an abundance of workers immediately. While these tax cuts are a step in the right direction, granting social security tax exemptions to all businesses for their employees for one year will provide them with a much greater incentive to hire more workers. Those 30 lawmakers that rejected Reid’s bill yesterday often claimed that his proposal would not do enough to spur job hiring. According to the Wall Street Journal:

the measure in question is likely to have only a modest boost on hiring.

The Americans for Tax Reform’s Center for Fiscal Accountability recently released a report on Reid’s bill:

The Center for Fiscal Accountability urges all Members of the U.S. Senate to vote “No” on Sen. Reid’s $15 billion “jobs package.” After weeks of talk about openness and bipartisanship, Senator Reid opted against exactly that and scrapped the initial jobs package, scheduled a cloture vote without allowing for debate or amendments.

Both the surface transportation reauthorization and the Build America bonds have less to do with job creation than with misguided priorities and handouts to labor unions and local governments. The extension Build America bonds will leave taxpayers to pay the tab for decades-long interest buy-down, while the extension of the expiring highway funding authorization disregards the underlying problems with financing transportation programs.

Extensions would not be necessary if transportation spending wasn’t riddled with waste and fraud – however SAFETEA-LU funded over $20 billion worth of earmarks. Beyond that, however, the package authorizes a one-time transfer of $19.5 billion from the general fund to the highway trust fund, and permanently increases the authorization level by modifying past rescissions of highway authority. Davis-Bacon prevailing wage requirement imposed on surface transportation projects further unnecessarily inflate the burden borne by taxpayers.

What’s worse, while some tax cut provisions are excluded, the package amounts to a net tax increase overall.

Taxpayers deserve better – vote “No” on Sen. Reid’s “jobs package”!”

Chris Edwards, tax policy scholar at the Cato Institute, testified before Congress
on how to create more jobs within the private sector. His solution: dramatically lower taxes on all businesses.

The administration has offered some narrow and temporary tax breaks for small business job creation, but that is not a promising approach for tax policy. Instead, Congress should focus on creating a simple, neutral, and pro-growth tax structure for all American businesses, large and small. After all, there is no strict separation of large and small businesses in the tax code…The income tax system has a wide-ranging impact on businesses. It affects decisions on building factories, purchasing capital equipment, and hiring workers. Rather than trying to micromanage these decisions through the tax code, we should design a system with low statutory rates and neutral treatment to allow businesses to allocate resources efficiently…In other words, higher tax rates reduce both the incentive and the funding for activities such as investment and hiring.

Modest tax cuts towards businesses, the key provision of Reid’s bill, may help to slightly increase employment for a temporary period of time. However, in order to have a noticeable and lasting impact, greater business tax breaks need to be implemented such as those included in Senator Grassley (R-IO) and Baucus’ (D-MT) initial jobs bill. In addition, Reid’s bill should scrap the surface transportation reauthorization and the Build America bonds as these provisions are likely to be wasteful while costing taxpayers billions of dollars. It’s time that a real jobs bill was created that extended tax breaks to all businesses without any earmark projects.