The Obama's Job Act: An Analysis
Not being able to stomach Obama's sudden interest in jobs, I passed on his speech to Congress and looked up the White House's fact sheet on his proposals. I rearranged them so that it was easier to see who gets what.
The Obama jobs plan:
$78 billion in tax cuts for businesses:
$65 billion cut payroll taxes in half from 6.2% to 3.1% on first $5 million in payroll
and from 6.2% to 0 on first $50 million in wages for new hires
$5 billion for 100% expensing on new plants and equipment, available to both large and small firms
$8 billion for $4,000 tax credits to hire those unemployed more than 6 months
$105 billion for infrastructure projects
$50 billion for transportation projects
$10 billion for an infrastructure bank
$30 billion to modernize schools
$15 billion in neighborhood stabilization (keeping up properties that banks don't)
$35 billion to rehire teachers and first responders ($30 billion for teachers; $5 billion for first responders)
$175 billion to cut employee payroll taxes in half from 6.2% to 3.1%
$54 billion for unemployed
$49 billion for an extension of Unemployment Insurance
$5 billion for transitional work programs
$447 billion: total
The first thing you should notice about this jobs plan is that it is not a jobs plan. Only $140 billion (the infrastructure projects and the teacher and first responder rehires) of the $447 billion (31% of the package) relates directly to job creation.
Business, especially small businesses, get a near $70 billion windfall without actually having to commit to hire anybody or hire anybody that they wouldn't have hired anyway.
The $175 billion employee payroll tax cut sounds good but it is unclear how much of this will result in new spending. The previous payroll tax cut went to pay down debt and to pay for increases in gas and food prices. None of that creates jobs. It just went to the banks and the speculators, but I repeat myself.
It's also important to keep in mind that halving the payroll tax for both employers and employees is a way for Obama to justify future cuts to Social Security. By deliberately underfunding the program, he can then demand benefit cuts to bring funding back into line.
Extension of the unemployment insurance is a good idea. However, it does not help the 99ers and it does not create new jobs. It simply keeps us where we are. Without it, more jobs would be lost and the plight of many of unemployed would be significantly worse.
The transitional work programs raise all kinds of red flags for me. States can get waivers to violate Department of Labor standards to force the unemployed back into the labor force. The Georgia Works model is promoted. This is where companies can hire the unemployed temporarily at minimum wage. It is wage depressing. There are also work sharing and wage insurance schemes. In a different labor environment or a different country, these might be useful but in ours I can't help but think they would be gamed to hire labor cheaply and then dump them when the subsidies ran out.
Then there is the question of how this will be paid for. Obama is putting it on the tab of Cat Food Commission II. Instead of $1.5 trillion in cuts, the new target will be closer to $2 trillion. As I said above, this looks like a setup to slash Social Security, as well as Medicare and Medicaid.
Finally, as even the loathesome Mitch McConnell has noted, this is an election year gimmick. It is not clear how much of this will be enacted, if the Republicans will play along (unlikely), or how many more sweeteners for business might be added. But like the original Obama stimulus it is too small and not really designed to address effectively the 14 million U-3 unemployed, the 25 million U-6 un- and under employed, and the 29 million disemployed. It is not meant to fix anything but to the stop the deterioration in jobs and the economy just long enough to get Obama through the elections. And to show his appreciation for our helping him out like this, he is sticking us with the bill.