Tax cuts produce fewer jobs in times of high unemployment: CBO study

Cutting taxes during periods of high unemployment will produce fewer jobs than during more robust economic times, according to a new working paper from the nonpartisan Congressional Budget Office (CBO).

“I find that effects on hours worked, employment, and the unemployment rate become smaller in times of higher unemployment,” the paper’s author, U. Devrim Demirel, wrote.

The reason, Demirel suggested, is that employers are less concerned about the costs of hiring at times of high unemployment, where labor is already relatively cheaper.

While the study was only a working paper, and its findings were described as preliminary, the paper could have significant implications for policymakers.

In negotiations over COVID-19 emergency relief, Republicans have pushed to provide tax breaks for struggling businesses. The paper did not weigh in on whether such tools would help keep businesses afloat, but its findings suggest that it wouldn’t be the best route to add jobs to the economy.

Republicans and Democrats are currently sparring over a fifth coronavirus relief package, with rekindled talks taking place Thursday afternoon.