Obama's Plan: 5 Reasons the American Jobs Act Just Might Work
In his address to Congress on Thursday, President Obama presented the American Jobs Act as a way to "put more people back to work and put more money in the pockets of working Americans." To succeed, of course, the package must run the usual gantlet in Congress, where Republican opposition to key parts of the plan is certain to be fierce.
Politics are a given in Washington, especially in an age of partisan rancor. The more immediate question is whether the Obama administration's jobs initiative can work. Whatever its merits as public policy, the AJA alone is unlikely to fix an economy that continues to operate at far below its full potential. Such stimulus measures also never work exactly as intended.
What the Act can accomplish, by contrast, is two-fold. Politically, it can focus lawmakers' attention where it belongs -- on creating jobs. Economically, the plan offers a number of sensible prescriptions for the anemic demand afflicting the U.S. economy. It is also timely, potentially shoring up the recovery as recession threatens anew. Here are five reasons why the AJA just may work:
Next: Big enough to make a dent »
Big enough to make a dent
The AJA provides $447 billion in tax cuts for employees and employers, spending on transportation infrastructure, aid to state and local governments, education funding, and other measures aimed at putting people back to work.
That investment, which includes roughly $200 billion in new government spending, amounts to a much bigger dose of fiscal medicine than many had expected Obama to propose. It is also in line with what some experts think is required to help stir the economy to life. Economists forecast that by the end of 2012 the plan would boost GDP by 1.3 percent and raise nonfarm employment by 1.3 million. It would create another 800,000 jobs by the end of 2013.
Next: Designed to work fast »
Designed to work fast
At least three-quarters of the planned spending under the AJA is earmarked for 2012, rather than stretching out that investment over several years, as Obama's 2009 stimulus package did. For instance, a near-term cut in worker payroll taxes would put money in people's pockets, while helping struggling homeowners refinance their mortgages would free up disposable income.
Accelerating the stimulus would more quickly boost economic demand and, in turn, encourage companies to start hiring. Moving swiftly is also important to buttress the shaky economy, which is teetering on the edge of a double-dip recession.
Next: Well-targeted and creative »
Well-targeted and creative
Beyond seeking to help average Americans, the AJA is wisely focusing investment on vital sectors of the economy when it comes to creating jobs, including small businesses, state and local governments, and homeowners.
Up to 98 percent of businesses would see their payroll taxes cut in half (up to $5 million in payroll). For example, a construction firm with 50 workers earning an average of $50,000 a year would get a payroll tax cut of 3.1 percent, or about $80,000. That is aimed at giving smaller employers, rather than large corporations, more financial breathing room to hire workers.
Meanwhile, in turning to measures like "worksharing," in which jobs are saved by having employees work fewer hours per week for somewhat lower pay, the White House is following the lead of other countries that have successfully used flexible labor policies to boost employment.
Next: Strengthens vital social services »
Strengthens vital social services
Obama's proposal to expand jobless benefits would help prevent a bad problem -- high unemployment -- from getting worse. Equally important, such assistance is a potent tool for stimulating the economy. A recent study found that each dollar spent on unemployment benefits creates $1.61 in economic activity, offering a much bigger bang for the buck than tax cuts. Similarly, other research shows that allowing unemployment insurance to lapse would slow economic growth and eliminate more than 500,000 jobs.
Next: Politically shrewd »
Politically shrewd
In aggressively underscoring during his speech that it is up to lawmakers to take action on the jobs crisis, Obama is raising the heat on potential congressional opponents -- especially Republicans -- to get behind the ideas in the AJA.
Of course, positioning his economic agenda against that of what is widely perceived as a "do nothing" Congress isn't guaranteed to win support for the plan's more controversial elements, such as the programs to boost government spending. Heading into an election year, however, when results at the ballot box are sure to hinge on the state of the economy, that strategy could bring even Obama's fiercest foes to the bargaining table.