National Association of Manufacturers cites CBO support for job creation powers of full Bush tax cut extension

The National Association of Manufacturers says fully extending the Bush tax cuts will create hundreds of thousands of jobs.

On Dec. 2, 2010, the business group issued a statement to show its support for extending all the Bush tax cuts, which are set to expire on Jan. 1.

Jay Timmons, the group's executive vice president, said that "manufacturers strongly support extending the 2001 and 2003 tax rates for all taxpayers. According to the non-partisan Congressional Budget Office, fully extending the 2001 and 2003 tax cuts would add between 600,000 and 1.4 million jobs in 2011 and between 900,000 and 2.7 million jobs in 2012."

We wondered whether the CBO, an independent group that estimates the cost and  impact of legislation, really found that a full extension of the tax cuts would be such a job-creating engine. So we tracked down the original CBO analysis.

The estimates come from written testimony by CBO director Douglas W. Elmendorf before the Senate Budget Committee on Sept. 28, 2010. Strictly speaking, the trade group has reported the numbers correctly. For 2011, the CBO did indeed estimate that full extension of the tax cuts on a permanent basis would create 600,000 to 1.4 million jobs, plus an addiional 900,000 to 2.7 million jobs in 2012.

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However, a couple of caveats are in order.

What are the alternative scenarios?

The way the group phrased its statement, you might think that the only alternative to its preferred option would be to let all the tax cuts expire. But the CBO ran the numbers under three other options -- a permanent partial extension (that is, a permanent cut for all but the wealthiest taxpayers, as Obama and many congressional Democrats favor) as well as a two-year extension for all taxpayers and a two-year extension for all but the wealthiest taxpayers.

The option favored by the manufacturers and most Republicans -- full, permanent extension -- does produce the most jobs. But the Democratic option isn't far behind.

In 2011, the permanent partial extension sought by Democrats would generate between 500,000 and 1.2 million jobs, which is about 100,000 to 200,000 fewer jobs (or 14 to 17 percent less) than the Republican option would generate. The picture is similar for 2012.

Meanwhile, both of the options for a temporary extension -- for all taxpayers, or for all but the wealthiest -- would produce fewer jobs than either of the previous two options, according to CBO.

Based on these estimates, you might say that the CBO data points to the GOP option as clearly the best, since it creates more jobs than any of the other alternatives. But it's more complicated than that. This brings us to the second bit of missing context.

What happens after 2012?

CBO found that the economic benefits from a permanent repeal for all taxpayers are higher in the first two years, but that policy comes with troublesome side effects after that.

In his testimony, Elmendorf argued that without other tax hikes or deep spending cuts, a permanent extension of the tax cuts would balloon the deficit to unsustainable levels. That's especially true if Congress extends the tax cuts for all tax brackets.

"A permanent extension of all of those tax cuts without future increases in taxes or reductions in federal spending would roughly double the projected budget deficit in 2020; a permanent extension of those cuts except for certain provisions that would apply only to high-income taxpayers would increase the budget deficit by roughly three-quarters to four-fifths as much," Elmendorf testified. "As a result, if policymakers then wanted to balance the budget in 2020, the required increases in taxes or reductions in spending would amount to a substantial share of the budget—and without significant changes of that sort, federal debt would be on an unsustainable path that would ultimately reduce income. ... Compared with the options examined here for extending the expiring tax cuts, various other options for temporarily reducing taxes or increasing government spending would provide a bigger boost to the economy per dollar of cost to the federal government."

When we contacted the NAM, Erin Streeter, the vice president for communications, said, "With an unemployment rate that remains historically high, today’s number edging up to 9.8 percent, we believe the best way forward is job creation. The more jobs we can create, the more economic growth we will see across the nation." But she didn't push back on the substance of our analysis.

So NAM is accurately quoting the numbers on the Republican alternative but conveniently leaving out the detail that the Democratic alternative is nearly as good at creating jobs. It also ignores the CBO's conclusion that extending the tax breaks for upper-income Americans offers diminishing returns. On balance, we rate the statement Half True.