President 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.
Unemployment benefit extensions: Maybe will pass, minimal impact. Republicans have been none-too-pleased with the idea of extending unemployment benefits. That’s because the current cap is 99 weeks — almost two years — which is hard to justify in an era when austerity is in focus and such long-term relief seems like a handout. Democrats argue a stop on those unemployment checks would slice a huge amount of money out of the economy that was guaranteed to be spent on consumer staples, and most experts agree that this baseline demand is crucial to at least keeping the economy stable. Obama has tread the middle ground by packaging the extension with an initiative modeled after the GOP brainchild Georgia Works — a program that lets businesses try out new workers without having to pay them. Long-term unemployed will get benefits extended by Uncle Sam if they join such a program, essentially meaning they get paid by the government and not their “employer.” The bridge-to-work plan could make jobless benefit extensions palatable for Republicans, giving this a shot at passing. Of course, this is simply maintaining the status quo by keeping the lights on and the fridge stocked. It’s hardly a true job creation initiative and will have little impact on growth.
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Mortgage refinancing: Long shot, questionable impact. As I mentioned with the infrastructure proposals, the biggest waste in the 2009 Obama stimulus plan came from tax cuts and credits. A big offender was that $8,000 incentive for first-time homebuyers, which neither stimulated the economy nor helped the housing market. Now Obama is back at it, proposing incentives to refinance in order to “put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.” Nice try. Most qualified U.S. homeowners have already refi-ed. As for who’s left, they have been shut out because they owe significantly more than their homes are worth or have poor credit histories. Haven’t we learned our lesson here? Besides, any plan would assuredly rely on the Federal Housing Finance Agency, an independent regulator which oversees Fannie Mae and Freddie Mac, to implement the plan. Given the backlash over the balance sheet at these bailed-out lenders, it’s hard to imagine Washington signing off on greater expenses and risk taking on top of previous mistakes at Fannie and Freddie. And if they do? Well, we’ve already seen poor participation in workout programs proposed by Obama. And if participation is strong, the impact of $2,000 is likely to be minimal much like the impact of the previous $8,000 tax credit was.
No cost to taxpayers: Great political move, but a fantasy. Obama’s deft political maneuvering attempted to place much of the fiscal burden of this jobs act on the Super Committee. The bipartisan group of 12 legislators is charged with finding a plan to slash the deficit by $1.5 trillion by Thanksgiving, and Obama asked them to up that number to an even $2 trillion instead to pay for this plan. The GOP already was eager for deeper cuts into wasteful spending to fund efforts that would aid the economy — and this is Obama’s version of that vision with a progressive agenda. But let’s be realistic: It will be hard enough to cut $1.5 trillion. And you can bet that the plan Obama will deliver on Sept. 19 to reach the $2 trillion goal will never pass the GOP smell test, if the math is even accurate. On top of that, we are taking a giant leap and assuming that Washington has the political and logistical will to pull any of those cuts off in time to have an immediate impact and offset immediate costs. You think reforming the tax code to save a few hundred billion dollars can happen in 60 days? Or an overhaul of Medicaid? Even assuming any cost-saving plan is generated by this Super Committee, the idea of putting anything in place quickly enough to offset these immediate costs is willfully naïve.
Obama’s re-election campaign: Re-energized but still deeply in trouble. Any logical American knows Congress is charged with making laws, not the president. And any fair political observer will admit that the Republican Party has bordered on obstructionist — even if, as conservatives claim, a few Democratic moves deserved to be obstructed at all costs. But the American people historically give the president credit in times of great prosperity and the blame in times of great trouble. We are decidedly in the latter category, so Obama is taking the heat no matter what else is going on. His speech to Congress was fast-paced and urgent, and in the days ahead he surely will stump on the idea that he has a plan and it should be put into action immediately. But if it’s not, he still will take the blame — especially because some contend this speech should have been given months ago. And even if the bill is passed, whether the American Jobs Act can have a significant impact before November 2012 is a tall order. Democrats seem re-energized at first blush, and perhaps the speech was a battle cry to spur them forward in the months ahead. But as a move to spur the economy forward, the American Jobs Act may not move the needle. And ultimately, Obama has everything riding on whether the economy shows significant improvement between now and Election Day.
