CRS – Unemployment: Issues in the 112th Congress

by Sabrina I. Pacifici on October 10, 2012

Unemployment: Issues in the 112th Congress, Jane G. Gravelle, Thomas L. Hungerford, Linda Levine. October 5, 2012

  • “This report considers three policy issues: whether to take additional measures to increase jobs, what measures might be most effective, and how job creation proposals should be financed. Most proposals discussed as part of a potential additional macroeconomic jobs bill are traditional fiscal stimulus policies. Their objective is to increase total spending in the economy (aggregate demand) either through direct government spending on programs or by providing funds to others that they will spend (through tax cuts, transfer payments, and aid to state and local governments). Proposals for employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs. To be effective, fiscal stimulus is generally deficit financed. Although a stimulus measure could be paid for by cutting other spending or raising other taxes, these financing options will offset the stimulative effects on aggregate demand. It is possible to choose a deficit-neutral package of tax and spending changes that would stimulate aggregate demand if some types of measures induce more spending per dollar of cost than others, but such an effect would likely not be very large. The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. If such an effective stimulus package could be designed, it would have the advantage of not exacerbating the challenges of a growing debt.”
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