These bills followed several policy steps taken while the recession was in effect. Attention most recently had focused on the significant increase in taxes and decrease in spending scheduled to occur at the end of 2012, popularly referred to as the "fiscal cliff." Economic projections had suggested that these policies would reduce spending and dramatically slow growth in 2013, most likely leading to a recession in the first part of 2013. Three policy issues are examined: whether to take additional measures to increase jobs (or avoid contractionary measures), what measures might be most effective, and how job creation proposals should be financed. The Labor Market Situation

From December 2007 to June 2009, the economy experienced the longest and deepest recession since the Great Depression. The labor market remained weak in 2010, with the unemployment rate averaging 9.6% for the year. Although the rate fell during 2011, it nonetheless was a still high 8.9% for the year. The labor market continued to slowly improve in 2012. In the fourth quarter of 2012, the unemployment rate fell to just under 8.0% for the first time since January 2009. Similarly, the provisions expiring in 2013, if no action is taken, will have contractionary effects (although small compared with those in the original fiscal cliff). These policies include traditional monetary and fiscal policy as well as federal interventions into the financial sector. A provision that was considered (but not included) in the Economic Stimulus Act of 2008 ( P.L. 110-185 ) was a 26-week extension of unemployment benefits. 110-343 ). 111-240 ). In December 2010, the President signed into law ( P.L. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended through the end of 2011 the alternative minimum tax relief and various other expiring tax provisions, and it extended and expanded bonus depreciation while also extending emergency unemployment benefits through 2011. Aside from the payroll tax cut, the other provisions of the legislation could be considered to prevent policy from becoming contractionary in 2011 (by allowing the deficit to decrease through the expiration of existing policy), rather than generating additional fiscal stimulus. On December 23, the Temporary Payroll Tax Cut Continuation Act of 2011 ( H.R. 112-78 ). 112-96 ). 8 and S. 3413 , the Republican tax proposal, that would extend the 2001 and 2003 tax cuts for a year and the AMT patch for two years; S. 3412 , the Democratic tax proposal, that would extend the 2001and 2003 tax cuts, except for high income individuals, and the parts of the 2009 tax cuts that expire at the end of 2012, along with a one-year AMT patch; and S. 3521 , approved by the Senate, that would extend the AMT for two years, most of the "extenders" for a year, and provisions allowing increased expensing of small business for a year. At the end of the 112 th Congress, in early January, the American Taxpayer Relief Act ( P.L. It included offsetting effects and should have a negligible effect on the economy. Spending, Transfers, and Tax Cuts

The objective of traditional fiscal stimulus is to increase total spending (aggregate demand) either through direct spending on programs or by providing funds to others that will spend (through transfer payments, tax cuts, and aid to state and local governments). Employment Tax Credits

Some argue the employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs. Should Fiscal Stimulus Be Deficit Financed? The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. Deficit-neutral proposals would tend to neutralize the effects of job creation provisions on total spending in the economy by cutting other spending or lowering the spending of those whose taxes are raised.
The longest and deepest recession since the Great Depression ended as expansion began in June 2009. Although output started growing in the third quarter of 2009, the labor market was weak in 2010, with the unemployment rate averaging 9.6% for the year. Despite showing improvement in 2011, the unemployment rate averaged a still high 8.9% for the year. The labor market continued to improve slowly, reaching 8% for the first time since January 2009. The rate fell slowly in 2013, reaching 7% by November, but still above the pre-recession rate of 5%.
Several policy steps were taken after the economy entered the Great Recession. They include stimulus bills in 2008 (P.L. 110-185) and 2009 (P.L. 111-5), an unprecedented expansion in direct assistance to the financial sector by the Federal Reserve, and the Troubled Asset Relief Program (TARP; P.L. 110-343). In December 2010, after the recession had ended, P.L. 111-312 extended the 2001 and 2003 "Bush" income tax cuts through 2012 as well as other expiring tax provisions and emergency unemployment benefits through 2011. The Tax Relief, Unemployment Reauthorization, and Job Creation Act also cut the payroll tax by two percentage points through 2011. The payroll tax cut was extended into early 2012 as part of the Temporary Payroll Tax Cut Continuation Act (P.L. 112-78) and again through 2012 as part of the Middle Class Tax Relief and Job Creation Act (P.L. 112-96), which also extended emergency unemployment benefits.
In 2012, attention focused on the significant increase in taxes and decrease in spending popularly referred to as the "fiscal cliff." Economic projections had suggested that these policies would have dramatically slowed growth and perhaps lead to a recession in the first part of 2013. The American Taxpayer Relief Act (P.L. 112-240) eliminated somewhat more than half the fiscal cliff, but fiscal policy remained contractionary for 2013 as compared with 2012 and was projected to cause growth to slow by one to two percentage points compared to what otherwise would have been the case. Some provisions of that legislation expire at the end of 2013. The Bipartisan Budget Act of 2013 allowed for higher spending limits, but had offsetting provisions with a negligible effect on the economy and did not extend most expiring tax and spending programs, including extended unemployment benefits. These provisions cause further contractionary fiscal policy effects.
This report addresses three policy issues: whether to take additional measures to increase jobs (or avoid contractionary policies), what measures might be most effective, and how job creation proposals should be financed. Most proposals that have been discussed in the past as part of a potential additional macroeconomic jobs bill are traditional fiscal stimulus policies. Their objective is to increase total spending in the economy (aggregate demand) either through direct government spending on programs or by providing funds to others that they will spend (through tax cuts, transfer payments, and aid to state and local governments). Proposals for employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs.
To be effective, fiscal stimulus is generally deficit financed. Although a stimulus measure could be paid for by cutting other spending or raising other taxes, these financing options will offset the stimulative effects on aggregate demand. It is possible to choose a deficit-neutral package of tax and spending changes that would stimulate aggregate demand if some types of measures induce more spending per dollar of cost than others, but such an effect would likely not be very large. The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. If such an effective stimulus package could be designed, it would have the advantage of not exacerbating the challenges of a growing debt.