President Barack Obama’s $447 billion jobs plan will sound familiar to anyone who has followed the government’s struggles to boost the economy through tax cuts and spending on roads, jobless benefits and education.
His call for payroll-tax breaks, extending unemployment assistance, increasing infrastructure spending and aiding cash- strapped state governments amounts to extending, tweaking or reviving policies lawmakers have already tried in the years-long effort to reduce unemployment.
“It looks like an amalgam of things we’ve already seen,” said Stephen Stanley, chief economist at Stamford, Connecticut- based Pierpont Securities LLC. “I don’t know why you would demand a joint session of Congress to deliver such a pedestrian package.”
With time running out for any measures to be felt before next year’s election, limited options for providing a short-term stimulus, and Republicans resisting more spending, Obama opted for ideas that have already won a measure of bipartisan support.
The president, under mounting pressure to address an economy that produced no net gain in jobs in August, presented his plan last night, the centerpiece of which would extend a payroll-tax break for millions of Americans. It would reduce the levy by 3.1 percentage points, a deeper cut than the current 2- percentage-point reduction that expires Dec. 31.
Payroll Tax Break
He called for a payroll tax break for small businesses as well, to help promote hiring, a proposal similar to a bipartisan plan enacted last year called the HIRE Act. He’s also proposing $62 billion to extend unemployment aid for another year.
Obama called for $105 billion for schools, roads and other types of infrastructure spending that was a major component of his signature economic-stimulus package of 2009. He now wants another round of assistance to state governments to help prevent layoffs of public-sector employees. And his plan would extend an expiring tax break for businesses that allows them more leeway to write off investments.
He also promised to help more people refinance their mortgages at “interest rates that are now near 4 percent.” The administration’s Home Affordable Refinance Program, which allows Fannie Mae and Freddie Mac to guarantee loans worth up to 125 percent of a home’s value, is set to expire in June 2012. Banks have been reluctant to make high loan-to-value mortgages and as of June, fewer than 358,000 borrowers have permanently refinanced under the program.
Representative Sander Levin, of Michigan, the top Democrat on the House Ways and Means Committee, said Obama is intentionally proposing old ideas.
‘Time to Act’
“The president’s whole pitch was that these are some ideas we’ve heard before from Republicans and Democrats and now that there is an economic crisis, it’s time to act,” said Levin.
Obama underlined that point by telling lawmakers, “There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans in the past, including many who sit here tonight.”
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said “it shouldn’t be very surprising that there would be two very different points of view about how to solve this particular crisis.”
“What is surprising is the president’s apparent determination to apply the same government-driven policies that have already been tried and failed,” McConnell said.
Some economists said there are good reasons why the administration’s plan looks like ones he’s offered before. Failing to extend the payroll tax break would mean millions of Americans would suddenly see their paychecks shrink beginning in January, which would do little to allay the public’s sour mood over Washington’s handling of the economy.
“The president is picking the battlefields upon which he wants to fight Republicans -- and this is one where he has the crowd on his side,” said former Congressional Budget Office Director Robert Reischauer.
In his challenge, Obama said, “I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes.”
Republicans, who have been lukewarm on extending the break, have signaled a willingness to consider the idea.
There “are areas that we can work together on, specifically in the area of small-business tax relief,” Representative Eric Cantor of Virginia, the House’s No. 2 Republican, said in a Bloomberg Television interview after Obama’s speech. Small businesses are “the real job engines,” he said.
Policymakers are also in a bind because failing to extend economy-boosting measures -- such as allowing taxes to rise and spending to fall -- can hurt growth.
“This is the challenge of any temporary stimulus package,” said Donald Marron, a former economic adviser to President George W. Bush. “On the front end, you get stimulus and then on the back end you get anti-stimulus, and the economic weakness has persisted so long that we’re now on the back end.”
If this was a more typical downturn, “you can do one round of stimulus and then by the time it’s unwinding, the economy is chugging away so that having things unwind isn’t that painful,” Marron said. “But what we’re finding today is an economy that is awfully weak.”
That leaves lawmakers spending a lot of money just to prevent a post-stimulus hangover. Mark Zandi, chief economist at Moody’s Analytics, who advised Democrats on their $825 billion 2009 stimulus package, said if lawmakers failed to act it would cut growth next year by 2 percentage points.
“It would be very hard on the economy,” he said. “Even in a good economy it would be difficult. But in this economy, it would raise the risk of recession to unacceptable levels.”
Payroll tax breaks, extending unemployment assistance and business expensing tax breaks are among the most cost-effective short-term stimulus measures, according to a February 2010 report by the nonpartisan CBO. Last month, the agency said in its biannual economic outlook that “the slow pace of the current recovery is broadly consistent with international experience of recoveries following financial crisis.”
Said Reischauer: “There isn’t going to be a Eureka moment where some policymaker suddenly discovers how to make gold out of base metals. You’re basically dealing with the cards you knew were in the deck.”
Michael Feroli, chief U.S. economist of JPMorgan Chase & Co., said “if there was some great idea out there, why would they wait until today” to try it? He said, “there is no silver bullet” for unemployment.
“Offering up something new, even if it didn’t turn out to work, would at least give the impression that you’re willing to experiment and try different things and that you haven’t given up,” Stanley said.
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