The very talented CBO is extremely cautious in its CBO scoring of all legislative initiatives. So it could well be that the CBO would be more conservative here than me, but anyway, let me assess what I think fair CBO Scoring would be on my two-pronged combination Job Creation Proposal: the Bonus Tax Depreciation Tied to Payroll Count Increases and the Double-Barreled Manufacturing Tax Credits, with Minimum and Maximum amounts, Tied to Payroll Count Increases.
If the CBO were to score my proposals here, I think there would be several substantial US federal government tax revenue increases that the CBO wouldn't allow to count in its scoring because the resultant US Government tax receipt inflows, even though they will be very substantial, are either too indirect and/or a bit too difficult to estimate with sufficient reliability to score.
First, with the very attractive manufacturing tax credit percentages on both the sales and purchases sides, coupled with both the growth and improvement in the work force as well as the much higher level of capital expenditures, there should be a huge pickup in both revenues and gross margins of many businesses in 2010 and beyond. There also should be a dramatic increase in 2010 and subsequent years' federal taxable income of businesses, before considering the huge accelerated tax deduction for Bonus Tax Depreciation, which all turns around before the end of ten years, and thus washes out in CBO scoring. Thus, there should also be a substantial pickup in the related US federal income tax receipts of businesses in 2010 and beyond, before considering this Bonus Tax Depreciation accelerated tax deductions, and also before considering the first-year manufacturing tax credit cost to the US government, which will be separately scored as an outflow. The CBO would probably score none of the above positive, very substantial financial outcomes. However, it would score the first-year cost of the Manufacturing Tax Credits as an outflow.
And second, the full-time US job creation will put substantially more funds in the hands of the newly-hired consumers. This will stimulate the overall US economy and US federal income tax receipts will increase markedly from this, but yet there will probably be no CBO scoring here, because it is too indirect and also too subjective in amount.
Now let me turn my attention to what I think, in all fairness, should be scored by the CBO. I think all the estimates used below, necessary to derive US Government tax inflows, are directly related to the main purpose of this Combination initiative, job creation, and also can be reasonably projected, and are certainly much more precise than many of the estimates that have been used by the CBO to score the recent health care legislation.
I will show two different computations below of what I think a fair CBO score would be for this Double Combination of Job Creation: a Conservative CBO Estimate and a Robust CBO Estimate.
………………………………………….........Conservative………Robust
........……………………………………………Estimate………...Estimate
US full-time jobs added
….......1Q 2010……………………………….800,000……….1,200,000
….......2Q 2010……………………………….600,000……….. 900,000
….......3Q 2010……………………………….400,000……….. 600,000
….......4Q 2010……………………………….200,000……….. 300,000
….......Total Year 2010………………..2,000,000……...3,000,000
.........When in Quarter Job Added..Mid-quarter……..Mid-quarter
Higher Average Number of Jobs in Year
...Resulting from 2010 Job Adds:
….......2011…………………………………1,800,000……….2,700,000
….......2012…………………………………1,600,000……….2,400,000
….......2013…………………………………1,400,000……….2,100,000
….......2014…………………………………1,200,000……….1,800,000
….......2015…………………………………1,000,000……….1,500,000
Avg Addtl Base Payroll per New Job..$40,000…………$45,000
Average Pay Increase per Year………………3%...................3%
Effective Federal Income Tax Rate…………15%.................15%
Combined Federal Payroll Tax Rate……….15.3%..............15.3%
Fair Estimate of CBO Score:
Cost
..Manufacturing Tax Credits in 2010..$40 bil……$60 bil
Federal Tax Receipts (Manufacturing Tax Credits Bounceback)
…..Federal Individual Income Tax Receipts
………………..2010……………………….....$ 7.5 bil..……..$12.6 bil
………………..2011……………………….....$11.0 bil..……..$18.5 bil
………………..2012……………………….....$10.0 bil..…….$16.9 bil
………………..2013……………………….....$ 9.0 bil..……..$15.3 bil
………………..2014……………………….....$ 8.0 bil..……..$13.5 bil
………………..2015……………………….....$ 6.9 bil..……..$11.6 bil
…..Total 2010 through 2015…………..$52.4 bil..…….$88.4 bil
…..Federal Payroll Tax Receipts
………………..2010……………………….....$ 7.7 bil..……..$12.9 bil
………………..2011……………………….....$11.2 bil..……..$18.9 bil
………………..2012……………………….....$10.2 bil..……..$17.3 bil
………………..2013……………………….....$ 9.2 bil..……...$15.6 bil
………………..2014……………………….....$ 8.1 bil..……...$13.7 bil
………………..2015……………………….....$ 7.0 bil…........$11.8 bil
…..Total 2010 through 2015…………..$53.4 bil..……..$90.2 bil
Total Federal Tax Receipts 2010-15..$106 bil..….$179 bil
Plus Total Reduction in Emergency
.....Federal Funding of Unemployment
.....and Other Related State Benefits........?....................?
In deriving the above Manufacturing Tax Credits of $40 bil and $60 bil, I simply took the number of jobs added in 2010 times the average maximum manufacturing tax credit per job of $20,000. I think these manufacturing tax credit numbers I am assuming here should be a bit too high. There are several factors causing this, which somewhat offset each other.
There will be quite a few jobs added that will result in manufacturing tax credits of much less than the $20,000 maximum average per new job. Labor intensive companies, with little capital expenditure action on either the buy or the sale side, will be getting only the minimum $5,000 per new hire. Also, any company could actually earn manufacturing tax credits based strictly on a percentage of sales price or purchase price, when the manufacturing tax credit based on the number of employees added multiplied by the $20,000 average maximum is much higher.
On the other hand, and going in the other direction, there will be companies, although not many, given this horrible economic environment, that would have increased their payroll counts in 2010 even without this Combination of Job Creation. These companies will be receiving manufacturing tax credits even though some of their job growth would have occurred anyway.
To be a bit cautiously conservative here, I just used the $20,000 maximum average manufacturing tax credit per job multiplied by the assumed number of jobs added in 2010 to derive the above Manufacturing Tax Credit Cost amounts.
I think that as a result of these two-pronged Job Creation initiatives, there are crystal-clear, directly-related federal individual income tax receipts, as well as crystal-clear, directly-related federal payroll tax receipts, that result from the addition of these US full-time employees in 2010. And I also think that the CBO should be able to make reasonable estimates to derive these amounts and thus should positively score them.
The main reason the total US Government Federal Tax Receipts substantially trump the Manufacturing Tax Credit Outflows relates to the way the initiatives were designed to maximize sustainable new jobs, most of which will last for at least five years.
The way the manufacturing tax credit program is designed (and really the Bonus Tax Depreciation too), the business must retain this 2010 increase in payroll counts for each quarter of the next five years, or else the manufacturing tax credit is recaptured. And since long-term employment should be the goal, I think there needs to be some minimum amount of time, like three years, where 100% recapture of the manufacturing tax credit would result from drops in payroll counts from the 2010 quarter end when they were first earned. Thus, there will also be higher payroll counts and thus additional federal income tax receipts and federal payroll tax receipts from 2011 to 2015, which can be reasonably estimated, and thus which I think should also be positively scored by the CBO. On the other hand, the federal income tax receipts from the much higher federal taxable income of businesses, and the related federal income tax receipts, even though very substantial in amount, cannot be sufficiently reasonably estimated for CBO to score them.
In addition to the Additional Federal Individual Income Tax Receipts and the Additional Federal Payroll Tax Receipts, there is one other item that I think should be positively scored by the CBO. And this item should result in very substantially positive CBO scoring.
With this Combination of Job Creation, there will be a significant drop in Emergency Federal Funding of Unemployment and Other Related State Benefits, since a lot more people will now be off the unemployment rolls, because they will now be employed. Also, state financial coffers will now be substantially improved from the markedly higher state taxable income of businesses, as well as the much higher state income tax withholdings from the increased payroll counts. And I think these state unemployment and related benefit costs should be considered in the CBO scoring of the US federal government here, since the US government is presently funding a lot of these state benefits, because the deep recession has caused the states to be under such severe financial pressure. I didn’t give a CBO score for this factor because I don’t have enough information to derive it. But it should be pretty large in amount.
End result…..The additional US federal income tax receipts and additional US federal payroll tax receipts, both derived from the increased payroll, triggered by the combination of the highly-charged effects of the Combination of Job Creation, will substantially trump the total cost of the Manufacturing Tax Credits included in the Double-Barreled initiative. Thus from any reasonable CBO scoring, this Combination of Job Creation is more than paid for and by quite a bit….. by at least 2.6 times, which grows to more than 3 times, when also factoring in the resultant estimated reduction in federal emergency funding for unemployment and other related state benefits.
