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The Buffett Rule, a proposal to force millionaires to pay federal taxes at a rate of least 30 percent, has turned into a hot-button issue, even if it stands little chance of passage.
Formally known as the "Paying A Fair Share Act of 2012," it failed a test vote in the U.S. Senate on April 16 after Republicans blocked it.
When its chief sponsor, Rhode Island Sen. Sheldon Whitehouse, spoke on the Senate floor about the projected $47 billion it would raise over 10 years, he suggested that the money could be used to rebuild roads and bridges and, in the process, underwrite jobs -- lots of jobs.
"The Senate Republican leader has described the bill as yet another proposal from the White House that won't create a single job or lower the price at the pump by a penny," Whitehouse said. "Well, the minority leader is absolutely right that the aim of this bill is not to lower the unemployment rate or the price of gasoline. However, if you put the $47 billion in revenue into infrastructure you could create 611,000 infrastructure jobs, and a lot of good infrastructure as well."
Earlier in the speech he made the same point: "We could use the $47 billion on badly needed infrastructure projects and create 611,000 jobs nationwide."
That's 13,000 jobs for every billion spent, or $76,923 per job. One of our readers pointed out that if you spread that over the 10 years that Whitehouse was talking about, that's only $7,692 per year, or a measly $148 per week, about half the federal poverty level. And that wouldn't include paying the costs of the building materials needed for an infrastructure project.
When we contacted Whitehouse's office, spokesman Seth Larson directed us to two documents.
It turns out -- based on the first document, a May 2009 report by the White House's Council of Economic Advisers (CEA) -- that the 13,000 "jobs" aren't jobs. Those are job-years. That's one job lasting one year, a distinction Whitehouse didn't make clear anywhere in his speech.
In that study, the CEA forecasts that spending $1 billion would create 10,870 jobs for one year at a cost of $92,000 for each of those one-year jobs. (We'll leave it up to others to decide whether that's a reasonable price to create a single job.)
The second document, a notice in the Federal Register from the U.S. Department of Transportation, says in a footnote that the CEA had revised its estimate, concluding that each billion spent on transportation infrastructure would create 13,000 one-year jobs.
So if $4.7 billion were raised per year by enactment of the Buffett Rule, that would be, on average, 61,100 jobs for that year. If those people continued to work on those infrastructure projects over the 10-year period, that would still be only 61,100 new jobs, not 611,000.
How reliable are these estimates?
PolitiFact Ohio looked at this issue on Oct. 26, 2011, when U.S. Rep. Steve LaTourette claimed that $1 billion in infrastructure investment translates to 42,000 jobs. That statement was ruled Half True because the estimates were all over the map.
LaTourette was citing an old number, used by both Republicans and Democrats, from the U.S. Department of Transportation's Federal Highway Administration. The newer estimate was 27,800 jobs for every billion spent. Before the recession, a University of Massachusetts study said a billion dollars in infrastructure spending created 18,000 jobs.
We put out calls and e-mails to a lot of people asking about the reliability of these numbers, including the Council of Economic Advisers (via the White House), a former member of the council who worked there during the Bush administration, the Cato Institute and several universities. We only received two responses.
"This is guesswork at best," and different economists will find such analyses more plausible than others, said Laurence Kotlikoff, an economics professor at Boston University who served as a senior economist on the CEA during the Reagan era. (He is also running for U.S. president as part of the Americans Elect campaign to nominate a candidate via the Internet.)
Arthur Mead, an economist at the University of Rhode Island, said, "You're always going to get a difference of opinion" on how many jobs will be generated if the government cycles money through the economy, known as the multiplier effect. "Depending on how much labor is involved, the size of the multiplier will be different."
And while liberal Democrat-leaning economists are more tempted to believe such investments will be a big boost to the economy because there are lots of people looking for work, conservative Republican-leaning economists might think the benefits will be less, fearing it will drive up wages and interest rates.
"Each side has an element of truth to it," Mead said. "There's always going to be a difference in terms of how they look at it."
Said Larson, the Whitehouse spokesman: "As noted by the FHWA [Federal Highway Administration], these projections change over time. That's why we chose to use the most recent -- and the more conservative -- formula available, which is also the one used by the Obama administration."
U.S. Sen. Sheldon Whitehouse said $47 billion raised by the Buffett Rule could finance 611,000 jobs for people rebuilding the nation's infrastructure.
But that's not really 611,000 jobs. It's job-years. It's the equivalent of 61,100 people employed full-time for just one year. To get to 611,000, you'd have to fire those 61,000 at the end of the year and then rehire another 61,000, and do that for a total of 10 years.
Because he didn't give it a clearer context, the 611,000 is misleading. When we think of a job, it's not working for just one year.
Also missing is the fact that these types of estimates -- even from reputable groups cited by both parties -- can vary widely.
To his credit, Whitehouse was citing an estimate that translates into fewer jobs than what other sources say. But the certainty of his statement is undercut by the mushiness of the underlying economic projections.
Ultimately, if everyone hired with this money stayed on the job for 10 years, Whitehouse would be off by a whopping 549,900 jobs.
For that reason, we rate his statement False.
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Reuters.com, "Buffett rule fails Senate vote in tax fight," April 16, 2012
YouTube.com, "Sheldon Calls on Senate to Pass Buffett Rule," April 16, 2012, accessed April 19, 2012
WhiteHouse.com, "Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009," May 2009, accessed April 19, 2012
Federal Register, "Notice of Funding Availability for the Department of Transportation's National Infrastructure Investments Under the Full-Year Continuing Appropriations, 2012; and Request for Comments," Jan. 31, 2012, Page 4863, Footnote 5, accessed April 19, 2012
PolitiFact.com, "U.S. Rep. Steve LaTourette says $1 billion in infrastructure investment translates to 42,000," Oct. 26, 2011, accessed April 25, 2012
NPR.org, "Most Small Businesses Don't Quite Fit The Political Picture," April 18, 2012, accessed April 30, 2012
MajorityLeader.gov, "Analysis of Small Business Tax Cut Act," April 2012, accessed April 30, 2012
Interview and e-mail, Laurence Kotlikoff, economist, Boston University, April 26, 2012
Interview and e-mail, Arthur Mead, economist, University of Rhode Island, April 27, 2012
APTA.com, "Economic Impact of Public Transportation Investment," Oct. 2009, accessed April 20, 2012
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