The budget outlook is PROBLEMATIC because the stimulus package increases the deficit by more than $100,000 for each additional person employed for one year, even after second round expenditure multiplier effects are accounted for. Instead, we need a stimulus that temporarily (for only a year or two) lowers the marginal cost of extra output and of extra workers. Only firms that increase total employment by at least 3% would be eligible and the size of their tax credit would be proportional to the number of full-time equivalent employees added beyond the growth target. The New Jobs tax Credit would expire in two years. The sooner the firm initiates its expansion, the bigger their tax credit. Some of the hiring that a NJTC will subsidize would have occurred without the prospect of the tax credit. When this is taken into account and a very conservative elasticity of labor demand is assumed (-.15), my simulations predict that it will cost only $36,000 (in lost revenue) to generate a full-time job paying $60,000. This is less than a third of the cost per job claimed for the $785 billion dollar stimulus. Do we have historical evidence that marginal employment tax credits are cost effective? Yes. The Democratic Congress elected in 1976 created a temporary New Jobs Tax Credit (NJTC) for 1977 and 1978 that lowered the marginal cost of expanding your workforce by roughly 15 percent on average (more for low wage and high turnover firms). Econometric studies have concluded it boosted employment at the end of 1978 by at least one million at a cost of only $3.1 billion of lost federal revenue. By the final quarter of 1978, real output of non-farm business had grown 15 percent in two years and unemployment had dropped from 7.8 to 5.9 percent. Private employment rose 11.5 percent from January 1977 to January 1979. In the 70 years the BLS has collected monthly data on private employment, this growth rate over a 24 month period was exceeded only three times--entry into World War 2, demobilization after WW2 and entry into the Korean War. The two-year percentage increase in total hours worked in the non-farm economy also set a record for the past 50 years as did the increase in the employment-population ratio. The 1974 recession hit bottom in the first quarter of 1975. Private sector output grew 7.7% in the next 4 quarters, slowed to 4.0% and 4.7% in the next two years and then accelerated to 7.5% during 1978. Total hours worked grew slowly during the first two years of the recovery--3.4% and then 2.0%. After the NJTC passed Congress, hours worked started rising more rapidly—by 4.5% in 1977 and 5.8% in 1978. The NJTC appears to have temporarily boosted the growth of both output and labor input. As one would expect, the subsidy of labor costs seems to have had larger effects on labor input growth than output growth. A tax credit for increasing jobs in the U.S. encourages firms to use existing plant and equipment more intensively (eg. by staying open longer, increasing overtime or hiring additional workers). And indeed capacity utilization did increase from 81.5 percent in December 1976 to 86.6 percent in December 1978 while the NJTC was in effect. That 86.6 percent rate of capacity utilization in manufacturing, mining and energy utilities has not been exceeded since. Over the last 30 years capacity utilization has averaged 81.3 percent. Do employers immediately reduce their work force when a marginal employment tax credit expires? Apparently not. During the subsequent 12 months (Jan. 1979 to Jan. 1980), output and payroll employment continued to grow albeit at a slower pace and the employment-population ratio and unemployment rate were stable. Industrial production was stable. Capacity utilization slowly declined as new capacity was brought on line. Apparently, the temporary character of the employment subsidy induced some employers to expand now rather than later. When the subsidy ended, the new hires were retained and those who left were replaced. Then two huge negative shocks hit the nation— the Iranian Revolution and the Iran/Iraq war caused oil import prices to increase by 160% and the Federal Reserve responded with a tough anti-inflationary monetary policy. These shocks caused the recessions of 1980 and 1982-83.