President Obama will call for a a $300 billion jobs program on Thursday night, with a series of different policies on the tax and spending side, according to multiple reports. Here’s just a sample of what Bloomberg highlights:
Almost half the stimulus would come from tax cuts, which include an extension of a two percentage point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers [...]
The main components of Obama’s jobs plan, though not its scale, have been largely telegraphed by the administration. Obama has pressed Congress throughout the year to renew the payroll tax holiday along with extended unemployment benefits, which also expire Dec. 31. Backing for a reduction in the employer contribution to the payroll tax has been under consideration since at least June.
The direct aid to local governments will focus on halting layoffs of teachers as well as first responders. Education will be a theme in Obama’s address and he will also propose as part of his infrastructure program money for school construction. Some of the infrastructure spending also would come from additional spending on roads, bridges and other surface transportation projects.
So this is in the ballpark of what has been expected all along. We can divvy it up into five separate components:
1) tax-side stimulus. There you have the extension of the payroll tax cut, with a new employer-side cut, perhaps targeted only to firms that hire more workers on aggregate, as has been discussed.
2) infrastructure. Included in this is some amalgam of the surface transportation bill and the national infrastructure bank, along with Jared Bernstein’s FAST proposal for fixing and upgrading American public schools.
3) direct state aid. This is slightly new for this round, but still desperately needed. Jobs statistics for the past two years routinely show cuts in the public sector offsetting whatever gains exist in the private sector. Teachers and firefighters and cops and nurses are being laid off across the country. Stopping this corrosion is one of the best things the federal government can do right now.
4) help for the unemployed. Re-upping extended unemployment insurance benefits would be part of this, but also you can expect a program for long-term unemployed modeled after Georgia WORKS, which allows long-term jobless to collect benefits (as well as a small stipend) and essentially intern at local companies for a short-term assignment. This is controversial, as the benefits of Georgia WORKS are mixed at best, and labor leaders have questioned whether it violates federal laws to allow free labor for corporations. If you pushed this envelope further and made it a wage-subsidy policy, you might have something, but this appears tailored to catch the eye of Republicans.
5) mortgage relief. It’s possible some kind of mass-refinancing scheme gets announced, although there are hurdles, mainly FHFA Acting Director Ed DeMarco, who is reluctant to refi many borrowers who wouldn’t normally qualify as well as negate any representations and warrants liability on the part of the banks. There’s also the fact that banks don’t appear to be able to keep up with the refinancing applications at present, and there should be no faith that they would be able to support a surge in such work.
Let’s briefly look at the numbers. A $300 billion scheme would amount to around 2% of total GDP, and that’s being charitable by saying that this would all be used up in one year. That would have an impact, but half of this would be supply-side solutions that haven’t inspired much confidence during the recession. The question of whether temporary tax cuts are spent is a good one to ask. Especially on the employer side; if minimum wage increases have no effect on jobs, then surely tax subsidies to make hiring cheaper wouldn’t either.
What’s more, $112 billion of this $300 billion would come just from that extension of the payroll tax cut, which is already in place. That’s not stimulative, it’s just an extension of current law. So would be the $55 billion or so for unemployment benefits. Letting them expire might be undesirable, but just keeping them in place would just maintain the status quo, which last month created something on the order of zero jobs. The rest of the items amount to $130-$140 billion, not nearly enough to fill the demand gap hole. Actual direct public works spending is scant, and the supply-side faerie dust irrelevant to the actual problem.
And of course, I’m talking in the hypothetical world where any of this can get passed. John Boehner and Eric Cantor want to hold a meeting with the President before the speech, presumably to tell him to his face that nothing he proposes will ever become law. They say they want to find “common ground” on reducing regulatory uncertainty. Given the ozone rule rollback last week, it’s likely there is plenty of ground there.
Maybe Cantor and Boehner will like next week’s speech better. Keep in mind, the jobs address was originally intended to be a deficit address as well, with a package of plans that would “pay for” the jobs spending. Somebody got to the White House and told them this would be a horrible idea, so instead, they’re splitting the two policy proposals, and will distribute their “grand bargain” deficit plan to the Catfood Commission II next week. Again, back to Bloomberg:
Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation’s debt [...]
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.
What a deal! For the sake of a jobs plan that has no chance of passing, old people and veterans get shafted!
If this is a policy document, it’s both inadequate and dangerous. If it’s a political one, it stays within well-drawn lines, rather than screaming what even the bond markets say the world needs – a complete reordering of fiscal policy to deal with a raging crisis. Yet we still have a Democratic Administration playing mostly on Republican turf.