Previewing the Obama Jobs PlanSeptember 7, 2011 - by Donny Shaw
Various news outlets are out this morning with a top-line number for the stimulus measure that Obama will be proposing before a jointy session of Congress tomorrow night — $300 billion. According to the reports, most of that money would be used for extending current measures that are scheduled to expire soon. Just $100 billion or so would be spent on new stimulus measures, which is clearly not enough of an investment to create the levl of demand for goods and services that’s needed to get businesses hiring. Let’s take a look at the specifics.
The status quo measure that would be extended under the proposal appear to include the payroll tax holiday, extended unemployment insurance benefits, and accelerated depreciation for business investments. All of these have roots in the 2009 stimulus bill and are scheduled to expire at the end of the year. The unemployment benefits and the payroll tax cut are at least considered by the Congressional Budget Office to be stong stimulative measures. The unemployment money in particular, because it is targeted at people who are likely to spend it in the U.S. economy, has been estimated by the CBO to be the most stimulative government investment possible, with potential to increase GDP by up to $1.90 for every $1 invested, leading to millions of new jobs over the next few years. Plus, it would provide relief to the people who have been most affected by the jobs crisis, so that’s a good thing. But remember, all of this — totaling $180 billion or so — would just be to make sure we keep pace with the current situation, which last month was zero jobs created (and which is really negative given that 100,000 or so new workers enter the work force each month).
Now for the new stuff. These parts are a little less clear, but it looks like from that reports that $110 billion or so will be split between aid to states, investments in infrastructure projects, and a tax cut for employers that hire unemployed workers. The state aid money would be used to help local governments keep workers on their payrolls. In the last few monthly jobs reports, the public sector has been the big loser. States and local governments across the country are facing huge budget shortfalls and have been forced to lay-off teachers, police, firefighters, and other public workers. The money Obama is proposing would help soften the losses we’ve been seeing in that category. Another new item appears to be some form of infrastructure spending. This will likely include a national infrastructure bank, which would direct government loans and grants to road and rail projects that already have some private investment, and a new plan to repair public schools along the lines of the FAST program put forth by economist Jared Bernstein. The tax cuts for hiring unemployed workers is an idea that was tried before under the HIRE Act that expired at the end of 2010. It may have helped a bit, but it is certainly not a game changer.
Bloomberg reports that Obama will ask for some of the $300 billion cost of the package to be paid for through cuts to benefits for senior and veterans. “Obama will unveil a framework for the deficit reductions next week, including changes to Medicare and Medicaid, in addition to other cuts in contributions to military pensions and farm subsidies.”
Remember, there’s almost no chance this package passes Congress, not unless Obama and the Democrats agree to attach something to it that could get strong backing form the Republican House, like extending the Bush tax cuts for income above $200,000 again. Even though Obama has pledged to not again break his pledge on extending the tax cuts, Democratic leaders in Congress are already talking about supporting an extension, so anything is possible.