Hiring Tax Credit Will Not Create Long-Term Jobs

According to this new report from the Heritage Foundation, the temporary tax credit President Obama proposed will not create sustainable jobs needed for long-term recovery. They commend Congress and Obama for trying to help workers who have lost their job, but suggest extending the 2001 and 2003 tax credits instead.

The credit proposed by President Obama pays $5,000 for each new hire a business makes in 2010. Businesses would also get refunds on their Social Security taxes if they increase wages or expand hours for existing-workers. The credit would be capped at $500,000 per business.

Congress tried a similar credit in the 1970s. It failed to create jobs, however, because much like today, policymakers ignored the jobs the credit would destroy since it had to be funded by government borrowing. Therefore, the current proposal must be evaluated by its net job creation--a standard that requires looking at the jobs created by the credit and the jobs lost because the government has to finance the proposal.

On the positive side, according to the Congressional Budget Office (CBO), the credit would create five to nine years of full time employment for every million dollars of credits businesses take. The White House estimates that the credit will reduce tax revenue by $33 billion. Combining these two estimates shows that before offsetting effects, the credit might create between 165,000 and 297,000 jobs in 2010. This works out to a cost of $111,000 to $200,000 per job created.

Continued at Heritage.org…

U.S. to Sell $81 Billion in Long-Term Debt Next Week

According to Bloomberg.com, the U.S Treasury Department plans to set a new record next week, by selling $81 billion in long-term debt, as part of their quarterly auctions. They plan to replace the inflation-protected 20-year bond with a reintroduced 30-year security. The move comes as an attempt to reduce the massive budget deficit of over $1 trillion.

The Treasury will auction $40 billion in three-year notes on Nov. 9, $25 billion in 10-year notes Nov. 10 and $16 billion in 30-year bonds Nov. 12. The amounts were in line with the median forecast of $80 billion in a Bloomberg News survey of nine analysts.

The U.S. is headed for a second straight year of budget deficits exceeding $1 trillion, and the country’s legal limit on debt may be reached next month. Treasury debt-management director Karthik Ramanathan told bond market participants this week to expect another year of government debt sales of $1.5 trillion to $2 trillion, minutes of the meeting showed today.

“Treasury debt managers will continue to remain aggressive in managing financing needs while minimizing potential market implications,” the Treasury said in a statement in Washington.

The government is on course to reach the debt limit, which currently stands at $12.1 trillion, by mid- to late-December, the department said. If the Treasury is forced to take evasive maneuvers to stay below the limit before Congress raises it, existing tools won’t create much extra room, officials said at a press conference.

Debt Limit

“Depending on the date that we hit the debt limit, they could last days or at most weeks,” compared with five or six months in previous debt-limit impasses, said Matthew Rutherford, deputy assistant Treasury secretary for federal finance.