'Jobs, Baby, Jobs.' - Fact Checker

"I'm proposing to give our businesses a new American jobs tax credit for each new employee they hire here in the United States over the next two years. "
--Barack Obama, October 13, 2008.

Barack Obama "proposed a New American Jobs tax credit. $3,000 tax credit per new job in the United States over the next two years. This is going to be a very expensive proposal that's going to cost about $170 billion had it been in place in 2007." --McCain economics adviser Douglas Holtz-Eakin,
October 13, 2008.
Talk about "lies, damn lies, and statistics." The Obama campaign says that a new proposal by the Democratic presidential candidate for a "jobs tax credit" for businesses that create new employment will cost the tax-payer no more than $20 billion a year. The McCain campaign has put a $170 billion annual price tag on the same proposal. So who is telling the truth?

The Facts
This is an excellent example of how the same statistical facts can be spun in entirely different ways by the two presidential campaigns, leading to diametrically opposite conclusions. To listen to the Obama folks, the cost of Obama's new jobs tax credit sounds relatively modest. The McCain campaign depicts the same measure as another example of Obama's big spending habits.

Let's take a look at the McCain numbers first. McCain economics adviser Douglas Holtz-Eakin took the number of total US nonfarm hires for 2007 from a Bureau of Labor Statistics report, available here, to reach a figure of nearly 58 million new jobs in 2007. Multiplying that figure by the $3,000 credit, he arrived at a total cost to the U.S. Treasury of $173 billion.

Nonsense, counters the Obama campaign. If you read the fine print of the Illinois senator's proposal, as elaborated in a Fact Sheet, available here, you see that he is not talking about gross new jobs, he is talking about net new jobs. In other words, if a company hires 100 new workers and gets rid of 90 old workers, that is only 10 new jobs. Furthermore the tax credit will only be available to "existing businesses," i.e. not to start-ups.
Obama will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired.
The Obama numbers were crunched by Austan Goolsbee, of NAFTA-gate fame. Goolsbee says he looked at quarterly labor statistics in order to exclude temporary hirings and firings that show up in the monthly Job Openings and Labor Turnover survey cited by Holtz-Eakin. Business Employment Dynamics statistics says, there were only 24 million new hirings in 2007, not 58 million as claimed by the McCain campaign.

to compute the number of net new jobs, Goolsbee took a sample of 7,000 companies in the COMPUSTAT database, and reached a figure for net employment growth of 7 percent of the workforce for 2007. He assumes, on the basis of this Bureau of Labor Statistics working paper, that job creation rates will fall by around 15 percent in 2008, to 5.95 percent.

Goolsbee went through his final calculations "5.95 percent of the private workforce of 114 million yields 6.8 million jobs that qualify for the credit. At $3,000 per job, this yields a cost of $20.3 billion per year."

McCain-Palin spokesman Brian Rogers, said "our estimate was based on our understanding of [the Obama plan] at the time. We stand ready to re-estimate."

To be fair to the McCain campaign, Obama's one-sentence reference to his "New American Jobs Tax Credit" in his Ohio speech was not entirely clear. A casual listener could have come away with the impression that he was referring to a credit for all new employees, not net new jobs. In order to understand what he was talking about, you had to read the fine print, in the form of the Fact Sheet, plus various comments by Obama economics advisers. Two Pinocchios for each campaign.