Dem, GOP jobs plans: long-term vs. short-term gains

TRENTON – The zeal to create jobs is evident among federal and state politicians, especially with election day looming. The question that remains is how to best go about it.

As usual, Democrats and Republicans have offered starkly different ideas, often splitting along long-term vs. short-term gains, according to analysts.

Democratic initiatives generally are based on the premise that spending  public funds will help preserve and create jobs, including for public workers such as cops, teachers and firefighters.

Democrats also often call for fixing up the public infrastructure as a speedy way to boost employment. There are almost always bridges and roads somewhere that need upgrading.

Republicans, on the other hand, want taxes reduced in various ways – tax cuts, tax credits, – and fewer regulations to accompany them, arguing this approach leads to lasting reform.

Proposals

The nearly $450 billion proposal from President Barack Obama, along with smaller-scale ones by Sens. Frank Lautenberg and Kristin Gillibrand, hearken back to a time when investing in job creation wasn’t readily dismissed as excessive spending by Big Government.

It is no accident that Democrat Lautenberg is trying to revive that more positive attitude in government when he introduced on Sept. 7 a plan that would create the 21st Century Workers Progress Administration, a modern-day version of Franklin Delano Roosevelt’s government program focusing on job creation and infrastructure improvement in the wake of the Great Depression.

One of the proposals to raise money for Lautenberg’s WPA program would be to impose a surtax on individuals making more than $1 million, and $2 million for couples. Obama’s jobs plan, which was blocked by Senate Republicans from getting a vote, called for a similar tax.

Both plans have a similar focus:

* Provide on-the-job training from a business willing to take on someone who was recently let go elsewhere;

* Hiring unemployed individuals as police officers and firefighters. Some of the state’s most violent urban areas – Newark, Trenton, Camden – have laid off police officers due to budget cuts.

The WPA proposal would primarily help individuals who have been out of work for at least two months.

Obama’s bill, unveiled as he prepares for a grueling re-election run next year, would provide $1.3 billion for state transportation projects, $519 million to repair schools, and approximately $830 million to rehire or prevent layoffs of teachers, police and firefighters.

When announcing the plan, Lautenberg framed it as an example of class distinctions.

 “The 21st Century WPA bill is a fiscally responsible solution to the jobs crisis that will not add one penny to the deficit and requires the wealthiest Americans to begin sharing in the sacrifice that is being disproportionately shouldered by the middle-class,” he said.

At the state level

State legislators are equally busy – and as politically divided – in coming up with job-creation bills.

One, S1865, sponsored by Sen. Joe Kyrillos, (R-13) of Middletown, would provide a 20 percent corporation tax credit toward the purchase of new manufacturing equipment, as well as for renovations and expansion.

The Office of Legislative Services projected an annual revenue loss of $143 million from the general fund in order to provide these credits. The executive branch projected an even larger chunk. The bill has yet to be voted on by the Senate.

Another bill, S1885, would allow tax deductions for the amount of net interest received on loans to certain qualified Urban Enterprise Zone  businesses. The Senate overwhelmingly passed it in late September. However, the Assembly – which has a companion bill, A3667 – has not been in session since passing the budget in June.

Other bills addressed diverse businesses, calling for expanding the film tax credit, or phasing out the cosmetic medical procedure tax.

Another bill, S3054, sponsored by Senate President Steve Sweeney, (D-3), of West Deptford, would expand certain business tax credit programs for  the gross income tax to smaller businesses, enabling them to use the funds for investment and hiring.

In a recent Senate session, several of these bills received bipartisan support. Afterward, Senate Minority leader Tom Kean, (R-21), Westfield, described the Democrats as perhaps “turning a new leaf.”

Scrutinizing approaches

But whose polices work better?

Michael Riccards, executive director of public policy at the non-partisan Hall Institute in Trenton, said the policies have different objectives, aimed at either the short or long term.

“They do different things. In the long term, infrastructure (work) has a good multiplier effect and has a legacy. But tax cuts could help in the shorter term.”

He said that in general, the two big obstacles contributing to an economic recovery are that banks are not lending enough to small businesses and consumers are hesitant to spend money because of job insecurity and a lack of money for discretionary spending.

“The banks are really scared after all the screw-ups and high health care costs cut into disposable income,” Riccards said.

Also, Riccards said an additional, critical issue is that many residents lack the education to adapt to jobs of the future. The problem is compounded when so many schools are calling for waivers from following the high standards laid out by former President George W. Bush’s landmark education legislation, “No Child Left Behind.”

New Jersey is one such state that has announced its intention to seek such a waiver.

“It’s like running in a race but you don’t want to train for it,” Riccards said.

Selecting a target

Arturo Osorio, a professor of economic development and business entrepreneurship at the Rutgers University Business School, said both types of economic development plans can be effective, but have to be targeted to specific areas.

However, in the long run, Osorio prescribes to the holistic line of thinking that investing in infrastructure, police officers and teachers provides more rewards.

“If you reduce crime, the social costs all go down, incarceration, etc,” he said. “By providing education you reduce social problems and you have a more educated workforce. You have to bring jobs (and employees) from outside.”

Road-building projects, Osorio said, could also help long-term if they end up providing access for commuters to reach commercial and urban centers where people work.

Building “roads to nowhere” doesn’t do much to stimulate the economy, he said.

Tax credits could also help corporations, he said, provided that specific conditions and goals are set and met in exchange for the benefits. He added that corporations don’t help the economy if they use tax credits to enhance their profits rather than investing in job creation.

Osorio said effective tax credits are ones that would require a certain number of jobs to be made, or one where a portion of the profits go toward creating social programs that could help the economy.

“It cannot be a blank check,” the professor said. “It’s a temporary concession that should produce certain outcomes. It (tax credits) is not a right.”

Lower rates

Will McBride, an economist at the Tax Foundation in Washington, D.C., said the foundation prefers lower tax rates instead of the tax credit proposals floating around.

He called tax credits “terrible ideas.”

“They are always limited to one group or another,” he said. “It’s not broadly available.”

Limited benefits is one of the reasons Senate Republicans on the state Budget Committee cited for opposing exte
nsion of the film tax credit. Senate Budget Committee Chairman Paul Sarlo strongly advocated for its  expansion, calling it a jobs creator despite the controversy that it benefits a  show such as “Jersey Shore’’ that some see as projecting a stereotypical negative image of the state.

The film tax credit expansion bill, S3056, eventually was approved along party lines in late September. That same day, Gov. Christie vetoed an Economic Development Authority award of $420,000 in such credits specifically targeted for “Jersey Shore.”

Senators Joe Pennacchio, (R-26), Montville; Anthony Bucco, (R-25), Boonton; Mike Doherty, (R-23), Washington Township, and Steve Oroho, (R-24), Franklin, also voted against other tax credit bills, such as an angel investor bill sponsored by Sen. Fred Madden, (D-4), Washington Township, that would take somewhere between $450,000 and $3.5 million out of state coffers, according to OLS estimates. It eventually passed the Senate by a 31-4 vote.

However, one tax credit bill was unanimously approved, the “Grow New Jersey” tax credit.

Among other things, it would provide credits to companies that “create or retain” 100 full-time workers. Company heads must prove jobs would be vulnerable to the chopping block without the credit, according to the bill. Credits on the corporate taxes could range between $5,000 and $8,000 per job. But this could amount to up to $1.2 billion in lost revenue, according to OLS.

McBride of the Tax Foundation said one of the first things the government could do to spur economic growth is to cut the corporate tax rate from 35 percent to 25 percent.

Because of all the inefficiencies involved in the federal government, McBride said the foundation’s position is that it’s best to let the private sector create jobs through more efficient spending.

 

Dem, GOP jobs plans: long-term vs. short-term gains