Are Senate Dems Committing Political Suicide Over Jobs Bill?

The $85 billion agreement was so geared to tax credits that it couldn’t accomplish much, but the $15 billion is almost worse, because it doesn’t include unemployment insurance aid or, like its precedessor, any aid to states and localities that are facing a $120 billion shortfall and the prospect of laying off nearly one million workers. Indeed, according to an analysis by the Economic Policy Institute (hat tip to Washington Independent), the tax credit at the heart of the bill would produce just 200,000 jobs, a mere 10.8 million shy of the needed jobs.

The initial media spin was that Reid was aiming to ​“appease rank-and-file liberals,” as The Washington Post declared, but few progressives in or out of the Senate are eagerly embracing a bill that does so little. Worse, there were mounting signs that Democrats are scramblingr to put together another more pro-Republican bill to get the needed 60 votes – yet another sign that the Senate is so broken that it can’t respond to a national crisis as long as the currently abused filibuster rules remain in place.

As the Washington Post reported Saturday:

Faced with possible defeat on President Obama​’s top agenda item for this year – job creation – Democrats privately discussed ways to regroup before a planned Feb. 22 vote on slimmed-down legislation totaling $15 billion. Such a small package probably would not create a large increase in hiring, some economists said. It is far less ambitious than the more than $150 billion legislation the House passed in December, which includes large increases in unemployment benefits and new spending on infrastructure.

“It is better than nothing, but it ought not be confused with a solution to the jobs problem,” said Harley Shaiken, a professor at the University of California, Berkeley, who cited the need for incentives for businesses to raise wages and aid to cash-strapped states. ​“What the Senate is talking about is not in the ballpark of what needs to happen to address this problem.”

The White House and Senate Democrats thought earlier this week that they had rounded up enough support to move an $85 billion legislative package, but they met fierce resistance from some liberals, who prefer something akin to the House legislation… 

The key provision in the Reid bill is $13 billion in credit for businesses that hire new employees, co-authored by Sens. Orrin G. Hatch (R-Utah) and Sen. Charles E. Schumer (D-N.Y.). The Congressional Budget Office estimated that the proposal, which would eliminate some payroll taxes on new hires and give businesses a $1,000 tax credit for hires that stay on at least a year, would result in 180,000 new jobs.

Lawrence Mishel, president of the liberal-leaning Economic Policy Institute, said the credit would benefit companies that bring on new hires, even if the businesses do not expand payrolls, so companies engaged in regular turnover might benefit as opposed to those that actually increase their number of employees.

Indeed, Mishel blasted the pared-down proposal on several grounds:

What remains is an extremely small measure that does not even include the renewal of the unemployment and Cobra health care benefits that are about to expire. Nor does it address the loss of a million public and private sector jobs this summer and fall as state and local governments slash services to address their budget problems. 

The main job generation component is the $13 billion Schumer-Hatch jobs tax credit, which is small and poorly designed. This proposal is about a third the size of the Obama administration’s suggested jobs tax credit and about one-sixth the size of the proposal offered by the Economic Policy Institute. The actual credit of 6.2% is so small that it provides little incentive. It gives the credit to firms for any hires they make, so firms with natural turnover get a tax subsidy…

The New York Times bluntly explained the political and economic miscalculations at work in this legislative train-wreck:

With 14.8 million Americans unemployed — more than 40 percent of them for more than six months — the smaller package is so puny as to be meaningless. Most of the $15 billion would cover the cost of a payroll tax holiday in 2010 for employers that hire unemployed workers. Since there are more than six unemployed workers for every job opening, a tax break for hiring is worth a try. But the proposed credit is too small to have a noticeable impact. At best, it would create about 250,000 additional jobs from April through the end of the year, according to an analysis by Moody’s Econ​o​my​.com.

An even bigger problem is that the hiring credit is unlikely to work as intended unless it’s paired with other federal support to generate and maintain consumer demand — mainly extended unemployment benefits and more fiscal aid to states. No matter what Congress does to lower the cost of labor, employers won’t hire unless they believe demand will be sufficient to sell whatever the business produces. Absent unemployment benefits (which will expire at the end of February if Congress does not extend them) and aid to hard-pressed states, there are, as yet, no compelling signs that consumer demand will hold up this year.

At a minimum, a credible jobs package must extend unemployment benefits through 2010. Piecemeal extensions only ensure that lawmakers will have to return to the issue repeatedly, creating avoidable uncertainty for unemployed workers and for businesses that rely on the consumer demand generated by jobless benefits.

A credible package also must provide fiscal aid to states, which continue to be slammed by falling tax revenues just as more people need help. Without more aid, states will have to cut spending and raise taxes to close an estimated $142 billion budget gap for fiscal year 2011, which starts on July 1 for most states. Last year’s gap was $125 billion. Next year’s is anticipated to be $118 billion.

What senators don’t understand or choose to ignore is that state budget cuts mean layoffs.

But the longer term implications of this failure by our broken political system to respond to this crisis will turn America into something we don’t even recognize. With even the White House predicting long-term mass unemployment, despite major improvements since the Bush-driven recession, the political prospects for November don’t look good for Democrats. And as summed up in the introduction to the Atlantic article, ​“How A New Jobless Era Will Transform America”:

The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come.