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Obama Jobs Plan: Some Worthy Ideas, but It Won't Turn the Tide

By Alain Sherter

Updated on: September 8, 2011 / 10:12 PM EDT / MoneyWatch

President Obama's jobs plan is -- take your pick -- dead on arrival, a fresh start, weak tea, strong medicine, too small, too big, conciliatory to Republicans, partisan agitprop. Whatever the spin, the central question is this: Can the policies he outlined in his speech to Congress tonight bring the U.S. economy back to life?

As a dose of fiscal stimulus, certainly, the $447 billion package of tax credits, public investment and job-creation measures is bigger than many had expected. Obama also is to be commended for underlining, if belatedly, the need for swift action on unemployment. Indeed, he repeatedly urged lawmakers to pass the so-called American Jobs Act "right away," adding:

The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy.

Small-bore solutions
At the same, however, the President also pledged to fully fund the package through additional spending cuts, including to Medicare and Medicaid, and by raising taxes on "millionaires and billionaires." Wrangling over those hot-button issues for Democrats and Republicans is sure to keep the circus in town indefinitely. And as TheAtlantic.com's Derek Thompson points out, many of the policies Obama endorsed, such as extending unemployment benefits, are already in place. Preserving them is a good idea, but they're unlikely to deliver much of a jolt.

The centerpiece of the plan is the cut in employee payroll taxes. Obama wants to extend the 2 percent tax break workers are getting on their Social Security contributions. But he is also proposing to lower the tax, from 4.2 percent this year to 3.2 percent in 2012, which amounts to roughlly $1,500 per year for the average worker.

That should help boost consumer spending by putting more money in people's pockets, but it's unlikely to bring the economy roaring back on its own. Americans remain heavily in debt. As economist Mark Thoma notes, many are less likely to use the tax cut to hit the mall than to repay creditors.

American Jobs Act: The details
Following is a White House outline of the AJA, along with the estimated cost of each element of the plan:

Tax relief for workers
Cost: $175 billion

Cutting payroll taxes in half for 160 million workers next year: The President's plan will expand the payroll tax cut passed last year to cut workers payroll taxes in half in 2012, providing a $1,500 tax cut to the typical American family, without negatively impacting the Social Security Trust Fund.
Allowing more Americans to refinance their mortgages at today's near 4 percent interest rates, which can put more than $2,000 a year in a family's pocket.

Targeted job measures
Cost: $140 billion

A "Returning Heroes" hiring tax credit for veterans: This provides tax credits from $5,600 to $9,600 to encourage the hiring of unemployed veterans.
Preventing up to 280,000 teacher layoffs, while keeping cops and firefighters on the job.
Modernizing at least 35,000 public schools across the country, supporting new science labs, Internet-ready classrooms and renovations at schools across the country, in rural and urban areas.
Immediate investments in infrastructure and a bipartisan National Infrastructure Bank, modernizing our roads, rail, airports and waterways while putting hundreds of thousands of workers back on the job.
A New "Project Rebuild," which will put people to work rehabilitating homes, businesses and communities, leveraging private capital and scaling land banks and other public-private collaborations.
Expanding access to high-speed wireless as part of a plan for freeing up the nation's spectrum.

Tax cuts for small businesses
Cost: $70 billion

Cutting the payroll tax in half for 98 percent of businesses: The President's plan will cut in half the taxes paid by businesses on their first $5 million in payroll, targeting the beneift to the 98 percent of firms that have payroll below this threshold.
A complete payroll tax holiday for added workers or increased wages: The President's plan will completely eliminate payroll taxes for firms that increase their payroll by adding new workers or increasing the wages of their current worker (the benefit is capped at the first $50 million in payroll increases).
Extending 100 percent expensing into 2012: This continues an effective incentive for new investment.
Reforms and regulatory reductions to help entrepreneurs and small businesses access capital.

Pathways back to work for the unemployed
Cost: $62 billion

As part of an extension of unemployment insurance to prevent 5 million Americans looking for work from losing their benefits, the President's plan includes innovative work-based reforms to prevent layoffs and give states greater flexibility to use UI funds to best support job-seekers,
A $4,000 tax credit to employers for hiring long-term unemployed workers.
Prohibiting employers from discriminating against unemployed workers when hiring.
Expanding job opportunities for low-income youth and adults through a fund for successful approaches for subsidized employment, innovative training programs and summer/year-round jobs for youth.

In short, the AJA a decent plan. But on its own, as Obama acknowledged, it's unlikely to solve the jobs crisis, let alone get the economy cooking again. Republicans are also likely to oppose much of the initiative, including the plan to boost spending on the nation's decaying transportation infrastructure. Without congressional action, tonight's address may only serve the White House in setting the tone for debate and in persuading liberal members of his base that he is serious about helping the unemployed.

That hasn't been apparent as the economy continues to falter, so any discussion in Washington about how to get Americans working again is a welcome shift from the fixation on cutting deficits.

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