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The REALITY of the American Jobs Act — 7 Key Obama Issues

The speech was good, but are the ideas?


Barack ObamaPresident Barack Obama spoke before a joint session of Congress on Thursday night to unveil his American Jobs Act. The headline facts: It’s a $447 billion effort that focuses on job creation and tax cuts and will be 100% paid for by yet-to-be-named reductions in spending.

Of course, the devil is in the detail. So here’s my analysis of the key points — and my effort to separate fact from fiction, and realistic expectations from political posturing.

Payroll Tax Cuts: Likely to happen, minimal impact. President Barack Obama pitched a redoubled payroll tax cut that would focus on both workers and businesses alike. The current payroll-tax reduction is set to expire in December, and had reduced Social Security taxes from 6.2% to 4.2%. Obama wants the cut not just sustained, but to go deeper in 2012, pushing the rate down to 3.1%. Employers who were paying the full 6.2% rate would also get a cut this time around, too. House Republican leader Eric Cantor reportedly was won over by cuts for businesses, so the GOP can get behind this part of the bill. Of course, passage and impact are two different questions. The previous payroll cut hasn’t exactly caused an economic boom, so it’s unlikely these tax reductions alone can move the needle or spur hiring. Consider that workers making $50,000 a year would see their take-home pay boosted by $1,550. A small comfort, but not much.

Road and School Construction: A tough sell, but would have decent impact. Obama went out of his way to avoid the term “stimulus.” That’s because government spending has fallen out of favor as an economic remedy since Obama proposed his $787 billion American Reinvestment and Recovery Act right after taking office in 2009. However, when the non-partisan Congressional Budget Office broke down the true impact of that initial stimulus, the direct spending by federal and local governments had the biggest “multiplier” effect and got a significant return on investment — and bolstered GDP by the biggest amount. Tax cuts for the wealthy, for corporations and first-time homebuyers had the smallest impact — so indeed there was waste in the initial stimulus. But infrastructure projects would create real jobs if Congress can come up with the money. That’s a very hard sell these days. (Read more in my column, “7 ugly truths of the 2009 Obama stimulus plan”)

National infrastructure bank: Never going to happen. The far left of the Democratic party urged Obama not to deliver a jobs bill that was designed just to win GOP approval. In a nod to his most liberal supporters who want an FDR-like Works Progress Administration effort, Obama floated the idea of an infrastructure bank to ensure transportation projects and school construction and a host of other projects can really ramp up beyond an initial push via stimulus. But House Majority Leader Eric Cantor derided a proposal as just a chance for bureaucrats running amok and a “Fannie and Freddie for roads and bridges.” In short, the GOP will go to the mat on this one. Consider it dead in the water — any possible impact is academic.

Article printed from InvestorPlace Media, http://investorplace.com/investorpolitics/obama-speech-america-jobs-act/.

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