President Barack Obama presented a $447 billion jobs plan before a joint session of Congress last night in a nationally televised speech in which he demanded six times that lawmakers act “right away” to boost spending on infrastructure, cut payroll taxes paid by workers and small businesses, and increase funding for public education in order to stem teacher layoffs.
Recognizing the potential for another long-winded debate resulting in an underwhelming resolution like that of the debt ceiling deal last month, Obama urged lawmakers to “stop the political circus and actually do something to help the economy.” With the unemployment rate hovering at or above 9 percent for over two years and the economy adding zero net jobs last month, public opinion of both the president and Congress has dropped as political agendas have gotten in the way of making real, significant changes to policy in order to stimulate economic growth.
Tax cuts account for over half of the dollar value of the president’s job-creation package, a fact that will certainly help in negotiations with Republicans, who have been advocating an extension of the payroll tax cut now due to expire at the end of the year. The president made it clear that the Republicans had no grounds to object to the package. “I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live,” he said. “Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”
Republican and House Majority Leader Eric Cantor, one of Obama’s most vocal opponents in Congress during the budget debate, has already conceded that there may be some areas of common ground between his party and the Democratic president’s plan, particularly tax reductions for small businesses. “That’s something we Republicans have been advocating for quite some time now,” said Cantor, also indicating that Republicans may support extended the payroll tax cut for workers as well.
However, the whole of Cantor’s party is not in agreement. Representative Bill Huizenga of Michigan says he is “not sure that a payroll tax holiday is really going to spur the economy.” Instead, Huizenga says, “a better tax break would be something that would spur along innovation and wealth generation” and create “ancillary jobs.”
Obama’s jobs plan will do just what Federal Reserve Chairman Ben Bernanke urged the government to do in a speech earlier in the day on Thursday, and that is focus more on boosting the economy in the short term rather than focusing solely on reducing the deficit in the long term. Furthermore, Obama says the jobs package will have no effect on spending cuts decided upon last month, that it will be paid for by spending cuts and tax increases over the next decade. Obama will announce the specifics of those offsets by September 19.
The plan also includes spending programs supported by Democratic constituencies, including a $105 billion infrastructure proposal for school modernization, rehabilitation of vacant properties, and transportation projects, all of which would create jobs. Most of the infrastructure spending would be next year, with some extending into 2013. The administration has estimated that it would need $35 billion in direct aid to state and local governments in order to stem layoffs of educators and emergency personnel. A White House fact sheet shows that that aid would save the jobs of 280,000 teachers.
The payroll tax cuts would cover the first $106,800 in earnings for both employers and employees, reducing the portion paid by workers next year from 6.2% to 3.1%. Temporary payroll tax deductions next year would also be offered as incentives for new hiring and to assist small businesses. Businesses would also pay the reduced 3.1% payroll tax for the first $5 million of their payroll, which gives smaller companies a greater benefit than larger ones. Furthermore, the entirety of the 6.2% employer contribution would be completely waived on the first $40 million net increase in the company’s payroll.
Obama’s proposal also includes additional tax credits for companies hiring veterans and workers who have been unemployed for over six months, and seeks to make it illegal to discriminate against applicants who are unemployed. The president also proposed a program that would have states continuing to pay unemployment benefits to people who have been out of work for more than six months while they train for jobs at businesses at no cost to the employer for up to eight weeks. States could also grant benefits to workers whose hours were cut back, as well as those 50 and older who took a lower-paying job after a layoff.
Mark Zandi, chief economist at Moody’s Analytics Inc., says the president’s plan would add 2 percentage points to economic growth in 2012 and reduce the unemployment rate by 1% compared to current policy.