AMERICAN JOBS ACT
President Obama's Jobs Plan

President Obama offered a series of proposals to boost hiring, finance infrastructure, preserve teacher and first-responder jobs and assist long-term jobless workers.  The plan would cost an estimated $447 billion, and Obama said he would propose offsets soon to cover those costs.

		Cost in billions
TAX BENEFITS		$245
Payroll tax cut for employees  -  Extend through 2012 a reduction in the employee share of the Social Security payroll tax,       and enlarge the cut so that workers pay only half the statutory rate -- 3.1 percent, down from 6.2 percent		$175
Payroll tax cut for employers  - Expand the Social Security tax cut to the employer share -- cutting that tax in half for the first $5 million     paid in wages and eliminating the tax for new hires or wage increases up to $50 million		$65
100 percent expensing  - Extend through 2012 a provision that allows companies to deduct immediately the full cost    of new plants and equipment, up to a limit		$5
JOBS PROGRAMS		$140
Infrastructure  - Provide $50 billion immediately to upgrade certain highway, transit, rail and aviation facilities		$50
Teachers and first-responders  -  Provide money to states for immediate use to prevent layoffs of teachers, police officers and     firefighters, and to make new hires		$35
Modernizing schools   - Provide money to repair, renovate or upgrade infrastructure in at least 35,000 public schools      and in community colleges		$30
Neighborhood stabilization  -  Create a national program that includes private involvement to rehabilitate and refurbish      vacant and foreclosed houses and businesses		$15
Infrastructure bank  - Create a national bank to leverage private and public capital for investment in infrastructure    projects that have national and regional significance		$10
Wireless initiative  - Deploy high-speed wireless broadband service to at least 98 percent of Americans and free up    broadcast specturm through incentive auctions		$0
AID TO THE UNEMPLOYED		$62
Unemployment insurance  -  Extend jobless benefits for the long-term unemployed, require states to overhaul their re-employment     services and allow flexibility in how they pay certain jobless benefits.		$49
Hiring incentives  -  Provide a tax credit of up to $4,000 to companies that hire people who have been looking for work for more     than six months; provide special tax credits for companies that hire long-term unemployed veterans and     veterans with service-connected disabilities.		$8
Low-income youth and adults  - Create a "Pathways Back to Work Fund" to pay for jobs and training for hundreds of thousands of low-income individuals		$5
TOTAL		$447

 *Gross cost of wireless broadband program of $10 billion would be offset by spectrum auction proceeds, with a net deficit reduction of $18 billion.  Source: White House

White House Press Release on American Jobs Act
Published September 8, whitehouse.gov

The American people understand that the economic crisis and the deep recession weren’t created overnight and won’t be solved overnight. The economic security of the middle class has been under attack for decades. That’s why President Obama believes we need to do more than just recover from this economic crisis – we need to rebuild the economy the American way, based on balance, fairness, and the same set of rules for everyone from Wall Street to Main Street.

We can work together to create the jobs of the future by helping small business entrepreneurs, by investing in education, and by making things the world buys. The President understands that to restore an American economy that’s built to last we cannot afford to outsource American jobs and encourage reckless financial deals that put middle class security at risk.

Read the full article here:
http://www.whitehouse.gov/the-press-office/2011/09/08/fact-sheet-and-overview

President and CEO of the Chamber of Commerce, Thomas J. Donahue, Outlines Why Obama’s Job’s Bill Falls Short
Published September 16, Wall Street Journal

While the jobs plan President Obama proposed last week contains some ideas that American business supports, it falls short. It focuses too much on government spending and temporary tax breaks and too little on the trade, energy, tax, regulatory and entitlement reforms that will jolt our economy and job market back to life.

The proposed payroll tax cut would likely offer a measure of relief for some small and medium-size businesses. Eligible enterprises that were already planning to add employees will welcome the hiring tax credits offered in the plan. Yet one-year, one-time tax changes will not create new jobs in significant numbers—and unfortunately, neither will the plan as a whole. It fails to adequately address the fundamental challenge facing our economy—too little growth—or the business reality that keeps companies from expanding payrolls—too few customers.

Read the full article on the Wall Street Journal website:
http://online.wsj.com/article/SB10001424053111904265504576568654004268180.html?KEYWORDS=%22free+trade%22

U.S. Chamber of Commerce Discusses Shortfalls of American Jobs Act
Published September 8, uschamber.com

U.S. Chamber of Commerce President and CEO Thomas J. Donohue issued the following statement on the president’s jobs speech:
“There’s no greater challenge facing our nation than creating jobs for millions of unemployed Americans. President Obama was right to call for swift passage of pending free trade agreements and smart investments in our transportation infrastructure. The administration and Congress must now act on these priorities without further delay in order to save and create hundreds of thousands of American jobs.

Full article on U.S. Chamber of Commerce website below:
http://www.uschamber.com/press/releases/2011/september/us-chamber-president%E2%80%99s-jobs-speech-offers-some-useful-proposals-action

National Federation of Independent Businesses (NFID) Claims Obama Speech Not Enough to Restore Confidence for Job Creators
Published September 8, Washington Post

In another attempt to show he understands the plight of job creators, President Obama appeared before a joint session of Congress to outline a plan to put Americans back to work. And again, he proved he does not understand – or does not want to acknowledge – the biggest problems facing small businesses.

The president does continue to emphasize the important role small businesses play in our economy. He is right on that account. According to government statistics, small businesses create around two-thirds of net new jobs and employ over half of the private sector workforce in this country. But NFIB research shows small business optimism is in recession-level territory, and the president’s pep talk to Congress on Thursday gave small business owners little reason to feel encouraged.

Read the full article below:
http://www.washingtontimes.com/news/2011/sep/8/nfib-speech-not-enough-restore-confidence-job-crea/

Plan’s Effect on Jobs Under Debate
Tax Incentives Might Benefit Broad Economy, But Not Spur New Hires
 
To sell its job creation plan to Congress, the White House will have to prove the proposal’s merits to skeptical Republicans in both chambers.  That is likely to be a tall order.

The administration faces a conundrum that has bedeviled other economic policy proposals – that the jobs program might boost economic growth broadly while doing relatively little to induce companies to take on new workers.

The White House and some top economic forecasters insist the bill (S 1549) would hit the right financial notes and get the labor market moving.  Still, it is far from clear how that will happen, or whether the $245 billion in tax incentives at the center of the package would have the desired effect.

That is a particularly important concern, because the tax incentives are the one piece of the package most likely to become law.

The tax cut portion is “probably the only thing in the package that is going to get bipartisan support,” said Sen. Charles E. Grassley, R-Iowa.  “But it isn’t going to do much to lead to new hiring.”
 
Obama has also proposed more than $100 billion in infrastructure spending and state aid.  Yet while such spending gets high marks from many economists who try to estimate the effects of fiscal policies, it is opposed by many Republican lawmakers.  Extended unemployment insurance, which Obama also included, would likewise provide an economic boost – although winning GOP votes to advance that part of the package may also prove difficult.

Moreover, conservatives argue that none of the infrastructure spending, state aid or jobless benefits provided in 2009 and 2010 did much to spur job growth.  That is an argument the White House cannot easily counter.  Although many economists contend that the 2007-09 recession would have been harsher without congressional action, in politics it is always hard to take credit for not allowing things to get worse.

Hard for Government to Create Jobs
Short of directly putting people to work, as Franklin Delano Roosevelt did in the 1930s and as Jimmy Carter tried to do in the late 1970s, the federal government has limited tools to create jobs and get them filled.  The task is even more daunting in a time of stagnant recovery in which many companies have the cash to employ workers but no real reason to hire them.

Relatively slack demand from consumers leads companies to curtail production and hiring for fear that buyers will not be willing to snatch up the new products.

The Congressional Budget Office (CBO) said in a  report last year that a Social Security payroll tax cut, for both workers and employers, is one of the quickest ways to increase overall economic demand – by putting extra cash in people’s pockets – and thus spark hiring.  Yet CBO also noted that one effort to do so, the “New Jobs Tax Credit” of 1977 and 1978 – through which companies that increased total employment by at least 2 percent received a tax credit – resulted in “inconclusive results.”

More recently, in March 2010, Congress tried a targeted approach to job creation by approving a tax incentive for companies that employed jobless workers as part of the so-called HIRE Act (PL 111-147).
Obama’s jobs plan refined that approach, using a series of very narrow tax breaks, against the backdrop of a stubborn 9.1 percent jobless rate and the reality that other jobs measures are not politically viable in the GOP-controlled House.

The White House plan would expand and extend the temporary reduction in the employee share of the Social Security payroll tax cut enacted in 2010, and also cut in half the employer’s share of the tax for 2012, for the first $5 million in payrolls.  Companies that hire new workers or increase the wages of existing workers would get an additional tax break.

Mark Zandi, chief economist at Moody’s Analytics, estimated in a Sept. 9 article that the Obama plan would create as many as 1.9 million jobs.   Zandi said the combination of the tax incentives “would give firms a substantive incentive to increase hiring and should result in a larger economic bang for the buck – additional GDP per tax dollar – than previous job tax credits such as last year’s HIRE Act.”

Others are not so sure.  That is because a hiring tax incentive does not directly address the lack of demand that is the reason companies are not taking on new workers.

Macroeconomic Advisers, a St. Louis-based consulting firm, predicted in a Sept. 12 report that the Obama plan would boost economic growth by 1.25 percentage points in 2012, and raise total employment by 1.3 million by the end of 2013.  Yet the firm expressed “suspicion” about whether the tax breaks would promote hiring, since they would be temporary and low aggregate demand would not be elevated much.

“It seems unlikely to us that in today’s weak economy, the credit would compel firms to incur the fixed costs of first increasing and then decreasing their labor/capital ration all within a year,” the firm wrote.

Democrat Bill Pascrell Jr. of New Jersey, a member of the House Ways and Means Committee, said he is not entirely sold on the tax incentives, in part because it is not clear whether they will succeed at creating jobs.  “I’m looking at some pluses – and some questionable results,” Pascrell said.  “I’m not so sure this helps us create jobs in the long run.”  But he said the tax incentives may produce “short-term gains.”

Senate Republican leaders will not say whether they will support elements of the Obama plan, stressing that last year’s payroll tax cut came as part of a larger deal to extend the Bush-era tax cuts.  But there are rising voices of opposition from the rank-and-file GOP conservatives in the House.

Addressing Demand

The expansion of the existing employee-side payroll tax reduction is geared more toward addressing the demand problem than the employer tax breaks.

At a minimum, and extension of the worker tax cut might prevent consumer demand from weakening.  Allowing the tax cut to lapse would “shave 0.9 percentage points off 2012 real GDP growth and cost the economy some 750,000 jobs,” Zandi said.

It’s an “elegant” mechanism, said one senior administration official, since it simply puts more money in workers’ paychecks without their having to do anything.

Still, it is difficult to measure the impact of the 2010 payroll tax cut nine months after it was enacted.  The White House says it helped cushion the blow of high oil prices and kept the economy from slowing even more than it has.  But some top Republicans point to the lack of job growth as evidence that earlier policies have not worked.

“There has been zero evidence that it moved the needle last year, and nothing suggests doing it again, albeit in a larger way, would increase hiring,” said a GOP aide.

At the same time, Republicans may find it hard to vote against a big tax cut, and in the current political climate, lawmakers are wary of doing nothing to address the lack of jobs.  That is why some top Republicans are signaling support for renewing the payroll tax cut.

But forecasting how many jobs the plan might produce is a crapshoot.  The administration learned that lesson when its job growth prediction for the 2009 economic stimulus (PL 111-5) fell short and handed Republicans potent political ammunition.

White House budget chief Jacob J. Lew said the number of jobs that would result from the administration’s latest proposal might be in the millions. But he told reporters that “there’s a danger of ever predicting unemployment rates.”  Another senior administration official was more blunt with reporters last week.  “We’re just not going to get caught in that trap,” the official said.

For information on the legislative and regulatory issues WFCA is tracking go to: http://wfca-pro.org/Legislative-Action.aspx