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.

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.


Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

Add a Comment

*0 / 3000 Character Maximum

11 Comments

Filter by:
Linda and Louie

These tax cuts maintain the status quo. No up side no down side.The ever expanding population is not needed or required in the work enviornment now.Never before,but now, it seems the government with its short bus intelligence has created a lifetime unemployment compensation plan with no end in sight.This status quo bill will not create jobs, the American population has been outsourced in their own country.KEEP LETTING EVERY MORON ENTER THE COUNTRY, AND CONTINUE TO BUY FAREAST CRAP. DONE DEAL

December 19 2010 at 8:22 PM Report abuse +2 rate up rate down Reply
dcrosetti

You guys still keep getting it wrong. The extention of the tax cuts DO NOT COST ANYTHING. It is a CONTINUATION of the EXISTING tax rate. If the tax cuts were allowed to expire, then you have two possible scenarios. Number one, tax revenues will increase. Not likely. Number two, tax revenues would decline. Very likely. Can you guarantee that raising the tax rates will generate MORE revenue? Of course you can't, because it wouldn't. The reason we are in a pickle today, is because 10% of the American taxpayers are out of work. They are not paying any taxes. Here's the deal. Unless we cut government regulation to make it more affordable for people to invest in America and increase jobs, we will have continued 10% unemployment. The CEO of Oracle said that it costs him 1 billion dollars MORE to open a facility in the United States that it would in another country. The reason is NOT the cost of labor. It is the cost of REGULATION and TAXATION. America has the second highest corporate tax rate in the world--only Japan has a higher rate. If American companies can go overseas and keep more of their profits, where do you think they are going to go? Overseas. Unless Obama can resurect the American dream, he will be a one term President, like Jimmy Carter was. It's time to put America back on the pedestal and to start talking about how our best days are ahead of us, not behind us. This President signed off on these tax extentions, not because he is a brilliant poplitician. He signed off because HE WAS DEFEATED in the mid-term elections. He didn't have any choice. Don't mistake his defeat as a change of heart. He may have been smiling as he signed the new law, but that smile was nothing more than "show business."

December 18 2010 at 12:43 PM Report abuse +3 rate up rate down Reply
2 replies to dcrosetti's comment
bggdg

But lost revenue is NOT a cost. Costs are ALL on the expense side of the federal budget ledger, while tax receipts are ALL on the revenue side of teh ledger. Moreover, following the the full implementation of the tax cuts in '03, federal receipts grew each of the five successive years, totalling a whopping 42% over the '03 - '08 period.

December 18 2010 at 5:56 PM Report abuse +1 rate up rate down Reply
pity4us

lacitsileinad it's not the governments money. It belongs to the people.

December 18 2010 at 11:44 PM Report abuse +2 rate up rate down Reply
bggdg

"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." I'm always amazed by Cohan's ignorance of basic economic tenants. OF COURSE no business is going to say, "individual income tax rates went down, I better to hire some more employees". Obviously, they do so for reasons the interviewd CEO's mentioned. "if the benefit of doing so exceeds the cost". BUT tax cuts do decrease disincentives to work and invest. This means more available investment capital to fund these start-ups, and more demand for their products. Greater invesment and consumption is exactly what creates an environment where "the benefit of doing so (hiring: exceeds the cost". It just seems impossible Cohan would be too stupid to understand such basic economics


See full article from DailyFinance: http://www.dailyfinance.com/story/taxes/obama-gop-compromise-tax-bill-jobs-reelection-2012/19767347/?icid=sphere_copyright

December 18 2010 at 11:12 AM Report abuse +1 rate up rate down Reply
enpassant44

Obama might lose the next Democratic presidential primary.

December 18 2010 at 1:20 AM Report abuse rate up rate down Reply
enpassant44

It sucks!

December 18 2010 at 1:15 AM Report abuse +1 rate up rate down Reply
butteparts1

Ha, Ha, Ha, HO, Ho, He, He!!!!!!- - You are one funny guy Pete! LOL!!

December 17 2010 at 3:10 PM Report abuse +1 rate up rate down Reply
excelsior6127

handing out tax rebates will have minimal effect on job creation. rather than tax benefits, the lost revenue would have been used by putting the long-term unemployed back to work by assisting in the repair of our infrastructure.

December 17 2010 at 3:09 PM Report abuse -1 rate up rate down Reply
bohemianacres

Repubs campaigned on keeping the tax cuts in order to get the unemployment mess corrected. Now that they have the tax cuts assured, if there are not more jobs coming and unemployment figures go down, the Repubs will blame not themselves but Corporate America for not hiring more people and keeping the cash on the books. Is that what you are saying? Sorry. This middle class American has the mind of an elephant. I will remember their campaign promise of a few months ago. If the job unemployment figure is not down to at least 8 percent by Spring of 2012, giving the Repubs plenty of time to get the unemployment mess straigtened out, this middle class American will be the insurance in the voting booth for another Obama win, not what your article states will put him on the list of over 55 percent of the voters.

December 17 2010 at 1:14 PM Report abuse -2 rate up rate down Reply
1 reply to bohemianacres's comment
bggdg

Does the opposite also hold? Will you give Repub's credit if unemployment IS at 8% or less?

December 18 2010 at 11:06 AM Report abuse +1 rate up rate down Reply
kenneth

So the author is saying that Obama hood-winked the Republicans, and thereby insured his re-election in 2012? I believe that to be true. Despite his ineptitude, Obama will still garner enough African-American, Hispanic, wild-eyed liberal, voters to win re-election. So we are doomed to another 6 years of this.

December 17 2010 at 12:58 PM Report abuse -3 rate up rate down Reply
freedive43

nothing like biased reporting, this bill will get him re-elected wishful thinking. you should report the news not make up the news

December 17 2010 at 11:31 AM Report abuse +3 rate up rate down Reply