How Many Jobs Will Obama's Tax Deal Create or Save? At Least One

The $858 billion compromise tax bill passed the House Thursday at midnight, and is on its way to President Obama's desk. With its passage, his reelection is more in the bag than ever: The bill will boost GDP and job growth, and if you plug the forecasts for its effects into Yale Professor William C. Fair's economic model -- which has a great record for predicting presidential election results -- you get an Obama win in 2012.

Here are some key provisions of the bill:

  • Continuation of current federal income tax rates

  • A one-year reduction in the Social Security payroll tax from 6.25% to 4.25%

  • $57 billion more for emergency unemployment benefits through 2011

  • 100% deductions on business equipment purchases in the 2011 tax year

  • A 35% tax on those portions of estates above $5 million, with smaller estates exempted.

If the point of the compromise tax bill was to create jobs, legislators chose a pretty inefficient way to do it. As I wrote in a Dec. 8 article on DailyFinance, the package is forecast to create 3.1 million jobs at a cost of $276,774 per job. That's 9% more costly than the $787 billion stimulus package, which cost $254,857 for each of the 3.5 million jobs it's touted with saving or creating. (Although some estimates for the number of jobs the earlier initiative saved or created are lower, which would eliminate the cost-per-job difference.)

Within the different provisions of the tax bill, there are wide variations in job-creating bang for the budget-busting buck. Strictly by the numbers, the bill shows that America puts far more value on pushing business to make investments and shielding the wealthiest from taxes than on helping people at the bottom of the economic ladder.

Here are the costs per job created for each of the various provisions in the tax bill, ranked from least to most efficient in job creation:

  • 100% expensing/bonus depreciation: $692,000

  • Business extenders such as R&D tax credit: $500,000

  • Tax cuts for top 2% of wage earners: $414,000

  • Extending the broad-based Bush tax cuts (for the bottom 98%): $383,000

  • Refundable low-income tax credits: $173,000

  • Payroll tax cuts (2 percentage-point reduction): $171,000

  • Unemployment insurance extension: $108,000

Inefficient Way To Create New Jobs

While it may not be all that efficient in creating new jobs, it is custom-crafted to preserve at least one. That's because if the bill has any stimulative effect at all, it is likely to boost 2012 GDP growth above Fair's 3.69% forecast for GDP growth in the first nine months of 2012. And at that level, Fair had already forecast that Obama would enjoy the benefits of an expanding economy to snare 55.9% of the votes in November 2012.

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Those new jobs, though, are a different story. My recent interviews with 17 startup CEOs revealed that none of them gives much thought to tax cuts when it comes to hiring. They add new workers only if the benefit of doing so exceeds the cost, and those companies were planning to add jobs back in October, months before this tax bill was on the table.

With unemployment at 9.8%, companies in general are doing just fine without hiring people. They're poised to post record profits of $1.66 trillion in 2010, and they're hoarding a record $1.9 trillion in cash on their books. With this tax bill behind them, Republicans will now pivot to blaming Corporate America's failure to invest in new jobs from fear of the tax cuts expiring in 2011 to uncertainty about what will happen in two years, when the extensions expire.

Still, in exchange for giving Republicans an expensive gift for a few thousand of America's wealthiest families, Obama has all but guaranteed himself a second term.