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The Right Way to Create Jobs

David Callahan

With over twenty million Americans still unable to find full-time work, Washington can't take its eye off job creation for a minute. That's certainly the feeling of voters, who overwhelmingly told exit pollsters on Election Day last November that fixing the economy should be Congress's number one priority -- far more than said reducing the deficit.

Frankly, though, official Washington seems better at destroying jobs these days than creating them: Exhibit A are the sequestration cuts, which are eliminating jobs as I write this. Exhibit B is the rollback of the payroll tax holiday on January 1, which ensured that nearly every working American has been living with a pay cut for the past ten weeks. 

But there's an even deeper problem with how most politicians approach job creation, which is that many of their ideas depend on secondary stimulus effects -- i.e., creating jobs by giving consumers more money to spend which presumably leads to more demand for goods and services and more jobs. That's particularly true of tax cut proposals, including the cuts for middle and lower class workers that Democrats prefer (like that payroll holiday).

Indeed, at this point, probably half of all stimulus approved by Congress since early 2009 has been in the form of tax cuts -- if you include both the original big stimulus measure program (nearly 40 percent of which was in tax cuts) and the payroll tax holiday. 

But there are a few basic problems with indirect stimulus.