Tax Cuts Trump Jobs in New Senate Bill

Senate Majority Leader Harry Reid and Finance Committee Chairman Max Baucus have kissed and made up. A couple of weeks ago, Reid stripped Baucus's bipartisan jobs bill of a mass of tax cuts, unwittingly jeopardizing extensions of expanded unemployment benefits and COBRA health insurance subsidy.

Now the two have produced a bill that's supposed to "help businesses thrive again, extend critical assistance to out-of-work Americans, extend tax relief to individuals and businesses and provide assistance to states to ensure that they can continue to provide health care to low-income families."

In reality, there's good news and bad news for the low-income families the bill purports to focus on.

It builds on a tax bill the House passed in December, when it also passed a jobs bill that, among other things, extended the expanded UI benefits and COBRA subsidies. As things panned out, the Senate has just managed to pass a one-month UI/COBRA subsidy extension.

So some welcome news in this new bill. The expanded UI benefits and COBRA subsidies would be extended to the end of the year, providing needed certainty for jobless workers and state UI agencies.

The bill would also extend the increased federal match for state Medicaid programs through July 2011. This will give states funds they critically need to provide essential medical services to the increasing number of people now eligible because of the recession.

With budget gaps to close, a number of governors have proposed Medicaid cutbacks. The FMAP extension could avert at least some of these because states can't get the higher match if they make their eligibility requirements more restrictive than they were in July 2008.

Other good news for low-income people. The bill would extend provisions that keep the refundable parts of the Earned Income Tax Credit and the Child Tax Credit from affecting eligibility and benefit levels in safety net programs.

It would also extend the 2009 poverty guidelines that are used to determine eligibility for many federal programs. Without this extension, some people would lose benefits because the guidelines would drop due to lower costs for common consumer goods and services.

But most of the bill consists of tax cut extensions -- more incentives, credits and deductions than most of us knew existed. The vast majority are for businesses. Looks as if every type of business got its interests in there, though some lobbyists will probably prove this wrong.

Credits for training mine rescue teams, business income earned in American Samoa and R&D for apparently anything. Rapid cost recovery for farm machinery and equipment, motorsports entertainment centers and new restaurant buildings and improvements. Accelerated depreciation for business properties on Indian reservations. Enhanced corporate deductions for charitable gifts of books, computers and food. And the list goes on.

Tax relief for individuals is mostly pegged to homeowners and others comfortably rooted in the middle class. Partial exceptions here for teachers' educational expenses and another for college tuition. One looks in vain for extensions of the current Child Tax Credit and the temporary increase in the Earned Income Tax Credit.

Maybe we'll see these later, since the bill doesn't extend certain other expiring individual tax cuts. You'd better believe Congress isn't going to let the estate tax revert to its pre-2002 level or fail to pass the annual "patch" that keeps the alternative minimum tax from hitting mid-income filers.

But, of course, low-income people don't need tax relief nearly as much as jobs.

Now, there are some job saving and creation aspects to the Reid-Baucus bill. UI benefits, for example, put money into local businesses. The money trickles up the supply chain to distribution, packaging and production companies. Both these and the retail businesses procure services from other companies. Jobs are saved and perhaps created throughout this network.

The Federal Medical Assistant Percentages extension should protect some existing jobs in hospitals and other health care facilities and in the companies that supply them. But many other public sector jobs will be lost because, unlike the House jobs bill, the Reid-Baucus bill doesn't provide the other kinds of state fiscal stabilization funding that were part of the economic recovery act.

However, neither bill would directly support the creation of new public service jobs, a major component of the comprehensive plan recommended by the Economic Policy Institute and its partners in the Jobs for America Now coalition.

The EPI proposal would put as many as a million people back to work and incorporate education and training that could put them on track to careers in growth sectors of our economy.

A bill introduced to implement this proposal, the Put America to Work Act, would target funds to unemployed low-income individuals and to communities with high rates of unemployment, poverty and other indicators of economic distress. Costs are estimated at $40 billion over three years.

Economist and New York Times columnist Paul Krugman says the size of the proposal "sounds about right" for the crisis. General tax cuts, on the other hand, "at best, lead only to indirect job creation, with many possible disconnects along the way."

The cost estimates of the Reid-Baucus tax provisions are hard to compare to the jobs proposal because they're projected over a 10-year period. But I think it's safe to say they total a whole lot more and would do a whole lot less for jobless workers who were struggling to make it even before the recession began.

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