Jan 14 (Reuters) - The U.S. unemployment rate, currently at 10 percent, is unlikely to drop below 8 percent before 2012 unless Congress takes further steps to boost the economy in the short term, the nonpartisan Congressional Budget Office said on Thursday. [ID:nN14187590]
Democrats are weighing a number of approaches with the hopes of bringing down the jobless rate before they face voters in November. The House of Representatives passed a $155 billion jobs bill in December and the Senate is expected to take up their own version in coming weeks.
Following is CBO’s assessment of some job-creating options.
The House voted to extend jobless benefits, including healthcare subsidies, for six months.
CBO said this one of the most effective ways to boost the economy because recipients are likely to spend the money immediately. Every dollar of unemployment aid would generate between 70 cents and $1.90 in economic activity, CBO estimated.
The House also allocated $48 billion for highway repair and other construction projects that could start within months.
CBO said this could yield between 50 cents and $1.20 in economic activity for each dollar spent, but most of the increases in output and employment would probably occur after 2011.
The House provided $27 billion to help state and local governments avoid layoffs of teachers and other public employees and to pay other bills.
CBO said this approach could save jobs, strengthen safety-net programs, and encourage local governments to buy more goods and services. It would boost output by between 40 cents and $1.10 for every dollar spent, CBO said.
Though it is not in the bill passed by the House, lawmakers are weighing a payroll-tax break for businesses that create jobs. CBO said this would be among the most effective proposals, with a boost of 40 cents to $1.30 for every tax dollar lost to the credit.
Across-the-board tax cuts would do less to stimulate the economy because much of that money would be saved rather than spent, CBO said. A tax cut for lower-income households would generate between 30 cents and 90 cents for every lost dollar in revenue, while a tax cut for everybody, including the affluent, would only generate between 10 cents and 40 cents in activity.
Businesses have been pushing for accelerated depreciation of investment costs, which would allow them to realize tax benefits more quickly. But CBO said this approach may be less effective in a weak economy, when businesses are less inclined to spend money on new equipment. It would yield 20 cents to $1.00 for every dollar in lost tax revenue, but many of the benefits would not take effect until 2011, CBO said.
Reporting by Andy Sullivan, editing by Vicki Allen