{"id":21,"date":"2011-11-08T05:29:14","date_gmt":"2011-11-08T05:29:14","guid":{"rendered":"https:\/\/ayoub-associates.com.previewdns.com\/blog\/?p=21"},"modified":"2012-07-31T04:46:38","modified_gmt":"2012-07-31T04:46:38","slug":"analysis-obama-tries-to-stave-off-recession-with-a-447b-jobs-plan","status":"publish","type":"post","link":"https:\/\/ayoub-associates.com\/blog\/analysis-obama-tries-to-stave-off-recession-with-a-447b-jobs-plan\/","title":{"rendered":"Analysis: Obama tries to stave off recession with a $447B jobs plan"},"content":{"rendered":"
\n

AS JOB growth has ground to a halt and stock markets have swooned, the outlook for both the American economy and Barack Obama\u2019s presidency has dimmed. The jobs package he unveiled in a much anticipated speech<\/a> before Congress on September 8th was a calculated attempt to resuscitate both.\u00a0His \u201cAmerican Jobs Act\u201d consists of a hefty $447 billion worth (roughly 3% of GDP) of new and renewed tax cuts and spending that, he hopes, will prevent a fiscal vice from pushing the economy into recession early next year. Its provisions were carefully chosen to stimulate job growth immediately while maximising the political price Republicans will pay to obstruct it.<\/p>\n

Mr Obama proposed not only extending a 2% payroll-tax cut scheduled to expire in December, but increasing it to 3.1%\u2014half the employee\u2019s normal contribution to Social Security. He also called for an equivalent 3.1% cut in the employer\u2019s payroll tax for the first $5m of payroll, and elimination of the entire 6.2% tax on the wages of new hires or on pay raises for current employees. At $240 billion, those provisions account for more than half the plan\u2019s price tag.<\/p>\n

He also wants to keep extended unemployment insurance benefits rather than let them expire in December while offering states flexibility to use the plan to encourage the unemployed to return to work. That could involve work sharing, which Germany used effectively to spread the decline in economic output across working hours rather than head count; letting the unemployed collect benefits while training or doing volunteer work; and wage insurance, which subsidises the wages of people whose new job pays less than their old. That would be a welcome shift for America\u2019s safety net which spends too much on income support and too little reintegrating the jobless into the labour market. Still, the sums are small relative to the scope of the problem.<\/p>\n

At $140 billion the bulk of the remaining money would be funnelled into public works and state aid. Mr Obama would send $25 billion to state and local governments to refurbish 35,000 schools and $35 billion to keep teachers, police and firefighters employed. Another $50 billion would go to immediate investments in highways and public transport, and $10 billion for an infrastructure bank that would try to leverage private capital for public works. While such spending has a relatively high impact on the economy, it has proven difficult to find projects that are both \u201cshovel-ready\u201d and worth doing.<\/p>\n

\"\"<\/p>\n

Prevention of a double-dip into recession is the president\u2019s priority. In February, his budget office predicted the economy would grow by 3% this year. Serial disappointments forced the White House to downgrade that to just 1.6% last month. Meanwhile, the fading impact of his original $825 billion stimulus and the expiration of $200 billion more in support added last December threaten to knock 2% from gross domestic product next year. Furthermore, tax collections have risen more than expected this year, which represents a further unanticipated fiscal tightening. Unaddressed, those factors could move the economy into recession, if it isn\u2019t there already. A senior administration official predicted that Mr Obama\u2019s plan, if fully enacted, would result in fiscal policy being roughly neutral, rather than a drag, next year.<\/p>\n

The president sought to make it as difficult as possible for Republicans to obstruct his plans by ensuring each of his proposals had some Republican parentage. For example, the infrastructure bank is modelled on a measure proposed by John Kerry and Kay Bailey Hutchison, Democratic and Republican senators respectively. The US Chamber of Commerce, a fierce opponent of much of Mr Obama\u2019s agenda, has been a vocal advocate of more infrastructure spending. The use of unemployment benefits to retrain the jobless is based on a Georgia programme that Republicans have praised.<\/p>\n

Nonetheless, there are limits on Mr Obama\u2019s appetite and freedom to compromise. His liberal backers threatened to desert him as he repeatedly caved in to Republicans, extending George Bush\u2019s tax cuts for the wealthy, agreeing to steep spending cuts in return for an increase in the debt ceiling, and just last week delaying new smog rules. His language and tone tonight were combative, at times hectoring. Noting how many Republicans have pledged never to raise taxes, he said, \u201cNow is not the time to carve out an exception and raise middle class taxes. Which is why you should pass this bill right away.\u201d<\/p>\n

Republicans have branded Mr Obama\u2019s previous stimulus a failure and have little vested interest in passing anything that helps him get re-elected. However, their calculus may be shifting. Congress\u2019 approval ratings have fallen further than Mr Obama\u2019s. Republicans paid a price for dragging the country to the brink of default in August in an effort to force Mr Obama to accept bigger spending cuts. A Wall Street Journal<\/em>\/NBC poll found voters blame Republicans more than Mr Obama for Standard & Poor\u2019s subsequent decision to downgrade the country\u2019s credit rating. This means they cannot afford to appear obstructionist, and indeed in recent days have begun sounding more conciliatory, promising to seek common ground with Mr Obama. John Boehner, speaker in the House of Representatives, politely said that Mr Obama\u2019s ideas \u201cmerit consideration\u201d.<\/p>\n

This, however, is a far cry from support. The most contentious element may be how to pay for the plan. Mr Obama promises it will not add to the deficit. Rather than specify offsetting spending cuts or tax increases, though, he proposed that Congress\u2019s \u201csuper committee\u201d, created under last month\u2019s debt ceiling deal, come up with the money. Under that deal, a bipartisan committee has until November 23rd to find up to $1.5 trillion in deficit reductions over the coming decade to add to the roughly $900 billion in spending cuts already enacted under the debt deal. Congress then has until December 23rd to pass them. If they fail, then automatic spending cuts of $1.2 trillion kick in. Mr Obama proposed amending the deal to increase both the committee\u2019s target and the automatic triggers by the same amount as the stimulus.<\/p>\n

The committee\u2019s task of finding common ground among its Democratic and Republican members is hard enough. After its first meeting, the morning before Mr Obama\u2019s speech, John Kyl, a Republican senator, threatened to quit if defence spending were touched. Jeb Hensarling, the panel\u2019s Republican co-chairman, said Mr Obama\u2019s plan makes the \u201calready arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible\u201d.<\/p>\n

Most likely, Republicans will cherry pick and pass the parts they like, such as free-trade deals. Administration officials put the odds of passing the proposed tax cuts at better than 50% but are less confident on the spending provisions.<\/p>\n

Mr Obama said that he will send more comprehensive ideas on tax and entitlement reform, including tweaks to Medicare, to the super committee in coming days. They will produce, he said, a primary budget surplus (that is, excluding interest payments). That\u2019s not as ambitious as it sounds: his latest budget already envisions a primary surplus by 2017. That, of course, relies on the scheduled expiration of tax cuts on the rich and elimination of some corporate tax breaks, which Republicans seem likely to reject. Mr Obama reiterated his intent to press for higher taxes, averring, \u201cThis is not class warfare, this is simple math.\u201d He was met by disbelieving murmurs. Nonetheless, the super committee may be the last chance before 2013 for Mr Obama and Republicans to reach some kind of grand bargain that cuts the deficit by reforming both taxes and entitlements. The panel\u2019s proposal can\u2019t be amended or filibustered in the senate, so it is uniquely suited for something so ambitious and contentious.<\/p>\n

Throughout his speech Mr Obama tried to impress a sense of urgency upon his listeners. \u201cSome of you have decided that our differences are so great that we can only resolve them at the ballot box. But the next election is 14 months away. The people who sent us here \u2026 don\u2019t have the luxury of waiting 14 months.\u201d But the odds that Mr Obama and Republicans can overcome their gaping differences in less than three months seem long indeed.<\/p>\n

Sep 9th 2011, 3:13 by G.I. | WASHINGTON<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

AS JOB growth has ground to a halt and stock markets have swooned, the outlook for both the American economy and Barack Obama\u2019s presidency has dimmed. The jobs package he […]<\/p>\n","protected":false},"author":88890,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,3],"tags":[],"class_list":["post-21","post","type-post","status-publish","format-standard","hentry","category-business","category-tax-tips"],"yoast_head":"\nAnalysis: Obama tries to stave off recession with a $447B jobs plan - Ayoub Sidhum & Co.<\/title>\n<meta name=\"description\" content=\"Ayoub and Associates CPA Firm is a full service Corona CPA firm that provides services in accounting, tax preparation and planning, IRS audit, and sales tax. 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