Why Harry Reid is stripping down jobs bill

In Washington, reaching bipartisan agreement on anything is tough these days. Yet Senate majority leader Harry Reid (D) of Nevada has just scrapped a jobs bill that had both Democratic and Republican support. What’s he thinking?

Senator Reid appears to be making a political calculation that the GOP will have a difficult time voting against his own, stripped-down version of jobs legislation. That’s because Reid has left the bill’s central job creation provisions intact, while jettisoning tax breaks and other provisions intended to win Republican support.

He is virtually daring his colleagues on the other side of the partisan aisle to oppose a measure with the word “jobs” in the title at a time when unemployment remains stubbornly high.

“The Republicans are going to have to make a choice ... I don’t know in logic what they could say to oppose this,” said Reid on Thursday when announcing his move.

The bipartisan jobs bill was developed by Sen. Max Baucus (D) of Montana, chairman of the Senate Finance Committee, and the panel’s ranking minority member, Sen. Charles Grassley (R) of Iowa. The overall cost of that package was an estimated $85 billion over ten years.

The pared-down version that Reid is pushing would cost only an estimated $15 billion over a decade. To reach that low price, Reid threw out the extension of some tax breaks included to win Republicans, but also some items popular with Democrats, including extension of unemployment benefits and subsidies to help the jobless keep their health insurance.

Reid said the Senate Democratic caucus backed his move. Trimming the bill could keep at bay criticism that the Senate was producing yet more legislation loaded with special deals.

But Republicans who had worked to craft the original bipartisan jobs bill weren’t happy.

Reid “pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis,” said Jill Kozeny, a spokesperson for Senator Grassley, in a statement.

The remaining centerpiece of the Reid-backed legislation is a tax credit for companies that hire people who have been out of work for at least 60 days.

Specifically, the bill would exempt businesses from paying Social Security taxes for workers hired in 2010 that had been unemployed for two months. In addition, they would receive a $1,000 income tax credit on every employee retained for a year on the firm’s 2011 income tax return.

The White House backs this basic approach. Administration officials say that the problem at the moment is to convince firms that the recovery is real and hiring needs to recommence.

“Something like a jobs tax credit we think could be uniquely effective now,” said Christina Romer, chairman of the President’s Council of Economic Advisers, on Thursday.

But some economists believe such credits are inherently inefficient employment-boosting tools.

Generally, companies only hire more workers if they think demand for their products is going to increase, notes Roberton Williams, a senior fellow at the Tax Policy Center of the Urban Institute.

A tax credit now might drive some hiring on the margins, says Williams. It might push companies that were thinking of taking on new worker to move more quickly than they might have otherwise.

“But the real winners will be firms who were going to hire anyway,” he says.

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