Deficit Neutral Jobs Stimulus

With unemployment near 10.2% in October and possibly higher in November, many Americans believe the government should be doing more to promote job creation. At the same time, however, many people are becoming increasingly wary of the growing deficit. Yet, it's pretty hard to create jobs without government spending. I can think of a few ways to help create jobs that are virtually deficit neutral, however.

Small Business Loans

One initiative that the Obama administration announced some months ago included expanding Small Business Administration (SBA) loans. Those are loans provided to small businesses that the government guarantees some large portion of. Since so many small businesses have had trouble coping with the credit crunch, more credit available would help those firms survive and encourage their investment.

The best part about the SBA loans is that, well, they're loans. In theory, most of that money should come back to the federal government. Under the Obama administration initiative, the federal guarantee of those loans went up to 90% from between 75% and 85%. So, yes, the government is on the hook for some of that money if losses occur. But even if they end up incurring, say, 20% losses on these loans -- which I think would be pretty high since the bank gets hit with the first 10% -- most job spending results in a 100% funding loss to the government. So I'd be pretty excited about an 80% savings.

The problem, however, is that the Obama administration program was capped at $15 billion. I don't think that's nearly enough. It also failed to broaden the program guidelines sufficiently that it might have a more significant effect. Just today, the Treasury released a report (.pdf) on its small business forum that contained dozens of additional ideas to make SBA loans more effective. Some of my favorites include:

- Qualifying more lenders to provide the SBA loans.
- Allowing larger loan balances to be obtained by firms.
- Expanding the size of the businesses eligible for the loans.
- Supporting working capital lines of credit.
- Allowing businesses to obtain loans against existing business contracts.

The government could make it easier to get these loans if companies are using the money to purchase property, plant or equipment -- which would result in those firms spending money that would go to other businesses. That would enhance the multiplier effect and create even more jobs in manufacturing and construction. If it wanted to, the government could even require any equipment purchased with the loans be American made, though I know that gets complicated and has its drawbacks.

The government should temporarily expand the SBA funding available and broaden the program until unemployment has come down. That way, it will ultimately spend a very minimal amount of money, but potentially help along the creation of a lot of jobs in small business.

Tax Deferrals

A few days ago, I wrote that it would be politically easier for Congress to pass a stimulus that lowered corporate taxes. Of course, that wouldn't be deficit neutral, because the government would be collecting fewer tax receipts. But what if, instead of lowering corporate taxes, the government more broadly allowed businesses to defer taxes for several years, until the economy picks up again.

I know that there are already ways in which companies can defer taxes. But if the government made it easier for businesses, especially small businesses, to defer taxes during this difficult time, they could pay them later when the economy improves. That way firms would lay off fewer workers or even higher more in the near term.

Again, the beauty of this idea is that it has the same effect as a temporary corporate tax decrease in the short-term, but doesn't result in the government losing that tax revenue in the long-term. This idea also becomes virtually deficit neutral. Even if the government doesn't end up collecting 100% of those deferred taxes, it will certainly collect far more than it would have with an across-the-board tax cut.

As the Obama administration works through its jobs summit this week, I hope it pays attention to ideas like these that would create jobs, but at a minimal cost to the federal government.