[Congressional Record Volume 156, Number 38 (Tuesday, March 16, 2010)]
[Senate]
[Pages S1575-S1576]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
HIRE ACT
Mr. KYL. Mr. President, we are going to be taking up the so-called
HIRE Act starting tomorrow. I wish to address some of the problems with
it since the procedure under which we have considered this bill does
not allow any amendments. As a result, we have no opportunity to fix
problems that are inherent with the bill and will force me to vote
against it.
The first provision that should be highlighted is the provision
called the Build America Bonds. This was created first in the 2009
stimulus bill. It offers a direct subsidy from the Federal Government
to States and other governmental entities to cover their cost of
financing for certain kinds of projects.
The House-passed bill expands this subsidy by allowing four current
tax-preferred bonds to qualify for the direct subsidy under this
program and increases the generosity of that subsidy to cover all of
the borrowing costs for education projects. This will mean an expansion
of the already substantial support the Federal Government offers for
State and local governments, support for which we taxpayers are then
responsible. The Federal Government gave $44 billion in extraordinary
stimulus State aid last year and regularly spends $26 billion annually
in sub-Federal Government subsidies through tax-exempt bond financing.
This is a significant Federal expenditure for which taxpayers will be
responsible.
Here is the key problem, in addition to the additional exposure of
taxpayers: Because interest rates reflect risks, States with poor
credit ratings that therefore pay higher interest rates would actually
be rewarded under this legislation due to the structure of these bonds.
For example, a State that issues $1 billion worth of debt paying a 5-
percent interest rate would receive a bigger direct payment from the
Federal Government than a State issuing $1 billion worth of debt paying
a 4-percent interest rate. Thus, States with lower credit ratings could
receive larger subsidies, which, of course, encourages greater risk-
taking and creates an incentive for States to issue even more debt than
they would have without the subsidy.
The so-called jobs bill would further reward States with poor credit.
The Senate version of the bill expands the Build America Bonds program
by giving insurers of certain tax credit bonds for school construction
and alternative energy projects the option of receiving direct payment
of up to 65 percent of the interest cost. The House bill would, in
certain cases, reimburse up to 100 percent of a project's interest
costs.
The original Build America Bonds program encouraged States to take
greater risks. The bill we will consider tomorrow would make the
problem even worse. One of the lessons from the financial crisis is
that people should not borrow more than they can afford. Unfortunately,
it appears many of us have not taken this lesson to heart.
There is a provision relating to highway extension. Rather than being
a straight extension of the current highway authorization, this bill
represents a significant expansion of the Federal Government's funding
for highway projects. The highway piece first cancels rescissions that
were scheduled under the last highway reauthorization. It then
permanently increases the authorization levels for highway spending and
permanently authorizes interest payments from the general fund to the
highway trust fund and authorizes a one-time transfer of $19.5 billion
from the general fund to the highway trust fund.
Although not all of these costs will show up as increasing the
deficit because of the unique CBO scoring conventions, all told, the
highway extension under this bill will add $46.5 billion to the debt
over the next 10 years and will authorize $142.5 billion in additional
spending over the next 10 years.
You hear the President talking about not adding to the deficit. All
of our colleagues wring their hands and say: We have to somehow control
Federal spending. Yet in this legislation we take up tomorrow we add
$46.5 billion to the debt over the next 10 years and then authorize an
additional $142.5 billion of spending over the next 10 years. When will
it stop?
There is a provision of the bill that has some merit to it. It is
called the payroll tax holiday, although I think the way it has been
constructed is not something we should do. This is the most expensive
piece of the bill. In fact, the Congressional Budget Office has told us
that it expects a provision similar to this to create five to nine jobs
for each million dollars in budgetary cost in 2010. Since this
provision would cost approximately $13 billion by using the CBO model,
one would estimate that the provision would create between 65,000 and
117,000 jobs this year at a cost of $110,000 to $200,000 per job. This
sounds a lot like the stimulus bill to me, a very inefficient way to
create jobs, if, in fact, they actually get created.
The proposed payroll tax holiday comes on the heels of the Senate-
passed health care bill which actually increases the Medicare payroll
tax from 2.9 percent to 3.8 percent. This actually would relieve
employers of an
[[Page S1576]]
element of the payroll tax. So which is it? Do we agree that payroll
taxes that are increased are unhelpful to job creation?
According to Timothy Bartik of the Economic Policy Institute:
The employer tax credit in the Senate jobs bill is likely
to create few jobs and at an excessively high cost.
As I have said, up to $200,000 per job.
He explains it this way:
Awarding credits for hires can be very expensive. Over a
one-year period, the number of hires, as a percentage of
total private employment, is over 40 percent even during a
recession. To pay for hires that would have occurred anyway
will be expensive and won't necessarily increase total
private sector employment. The Schumer-Hatch design tries to
avoid some of these large costs in several ways. First,
credits are limited to hiring the unemployed, apply only to
the rest of 2010, and are only worth 6.2 percent of the new
hire's payroll costs. The retention bonus is of modest size
and delayed. While these limits control costs, they also
hamper the credit's benefits.
Limiting the credit to hiring someone unemployed at least
60 days makes the credit less attractive to employers.
Not only does the credit become more complicated to claim
(which reduces its effectiveness), but it restricts the
employer's hiring to a more limited pool of workers.
Bartik also explains that past experiences--for example, with the
targeted jobs tax credit, the work opportunities tax credit, and the
welfare-to-work tax credit--show that tax credits to encourage hiring
disadvantaged workers usually generate little employer interest and
have a negligible effect upon employer behavior. He says:
Employers are happy to claim such credits, if they happen
to meet the credit's rules, but they are reluctant to change
their behavior in response to such targeted tax credits.
So even the one provision of the bill that actually has some alleged
relationship to job creation probably would not and, to the extent it
does, would cost an extraordinary amount of money per job actually
created.
Let me turn to one of the ways in which these expenses are allegedly
offset: delaying the application of the so-called worldwide interest
allocation. This is a very bad idea. This delays implementing a
corporate tax reform we passed in 2004 in order to help American
businesses properly account for their overseas income and, frankly, be
more competitive with those abroad.
The worldwide interest allocation rules were originally improved as
part of the American Jobs Creation Act of 2004, as I said, and were
scheduled to take effect in 2009. However, the Housing and Economic
Recovery Act of 2008 delayed the effectiveness of these rules by 2
years to 2011. The Worker, Homeownership, and Business Assistance Act
of 2009 that extended the first-time home buyer tax credit further
delayed the effectiveness of these rules to 2018.
The so-called jobs bill would delay this provision through the end of
the existing budget window to 2021. Repeated delays have the same
effect as repeal: an increase in the effective corporate tax rate. As I
said, that does nothing to help our American businesses in their desire
to compete overseas.
So these are just some of the reasons why I am not going to be able
to support the HIRE Act, and I would urge my colleagues, since we are
not going to have an opportunity to amend it, to oppose it as well.
Might I ask, Mr. President, how much time I have remaining?
The PRESIDING OFFICER. The Senator has 5 minutes.
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