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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.

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Jessica Yogini's picture
Submitted by Jessica Yogini on

Just image polishing. "Look Obama is fighting for you". Trying to work with the meme that the problem is that nice Mr. Obama needs to fight harder against the Rs, who are the source of all evil.
It won't even slow down the deterioration. And if there is any further crash, due to unwinding of the systematic foreclosure fraud or due to the Euro crisis, or whatever, then this will be like the seawall at Fukushima. Or maybe like replacing even that seawall with a billboard promising to build a seawall.
They must really be counting on Perry to get Obama re-elected.
The Dems are quite locked down. No spirit of rebellion left there, but there will be a lot of comparative active, high-information voters looking for an alternative, desperately hunting for an alternative.
I'll support almost any third-party candidate, as long as they are not campaigning on the kind of "bipartisanship" that Bloomberg goes on about. The toxic middle. The problem is not that the assholes bicker, but that they are assholes.

Valhalla's picture
Submitted by Valhalla on

The problem is not that the assholes bicker, but that they are assholes.

It's the perfect response to the fake-civility-bipartisanship zombie lie.

Even better, you can fill in with any number of equally true alternatives, like "The problem is not that the vampire squid bicker, but that they are vampire squid!"

Fill in your own!

cal1942's picture
Submitted by cal1942 on

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.

Weakening the Social Security Trust Fund will simply provide an argument for cutting Social Security, IMO, an Obama goal; a goal that's been obvious since the primaries.

Submitted by lambert on

MMT teaches this, and I believe they have it right.

However, people believe that it does. A brutal conflict to come where both sides believe in a lie. Typical.

Submitted by Hugh on

I agree and it is what I say in the following paragraph and also at the end. Our elites are very fixed on gold standard thinking when it comes to programs that help the many. But as any MMTer would tell you (and I am by the way not an MMTer), we don't need the payroll tax to fund Social Security. The government can just create the money by crediting accounts. The only difference between doing this and issuing Treasuries is that the government pays interest on the Treasuries. This is something most people have a lot of trouble getting their heads around. But in the world of finance, cash and Treasuries are interchangeable, except that we pay a subsidy (interest) for reasons that don't make any sense in a non-gold standard world to the holder of Treasuries.

Cujo359's picture
Submitted by Cujo359 on

To tell you the truth, the MMT vs. Keynesian debate has always struck me as one of those theological exercises best avoided. Even so, I can tell you this: Things like that $4k per worker tax credit for hiring the long-term unemployed won't help hardly anyone. That sum is about a tenth of what a professional employee will cost a company over six months. What employer in his right mind will hire someone he wouldn't otherwise have hired for that kind of money? None I'd care to work for, that's for sure.

Cujo359's picture
Submitted by Cujo359 on

I think you can count the $54 billion for unemployment in the "jobs" category. It will be spent by its recipients, which will increase demand. Just about any economist who can mange to find his ass without using both hands knows that demand is one of the problems in this economy right now.

Even so, that's about $200 billion in job creation money, which we're supposed to pay for by giving up safety net programs that we've been paying for.

With a $2 trillion-plus output gap, that's chump change, and we're expected to give up SS and Medicare to pay for it. Yes, for some of us it will be all of SS and Medicare, because as the eligibility age is raised in a worsening economy, fewer of us will live to see it.

Submitted by Hugh on

The $49 billion to extend jobless benefits just keeps us at the current baseline. It does not create new jobs. It's that if this funding doesn't come through, further jobs would be lost.

Cujo359's picture
Submitted by Cujo359 on

To me, saving jobs that would otherwise have been lost, and adding new jobs are both about jobs. The tax breaks won't do much of either.