Obama’s jobs plan: is it enough?

President Obama surprised his progressive critics by proposing a $450 billion stimulus plan—about $150 billion larger than what most had predicted.  And he surprised and pleased them once again today by announcing that he proposes to pay for the plan by raising taxes on people with incomes over $200,000 a year.

The proposed American Jobs Act appears to have something for everybody.  Kevin Drum of Mother Jones gave this useful breakdown of what’s in the President’s proposal.

  • $250 billion in tax breaks.  Most of this is a payroll tax cut, but the plan also includes 100% expensing of business investment, tax credits for hiring unemployed workers, and a few other things.
  • $100 billion in infrastructure spending.  About half of this is for new projects, and the other half goes to an infrastructure bank, a program to fix up vacant and foreclosed homes and businesses, and a program to fix schools.
  • $100 billion in other stuff, including extension of unemployment benefits, direct state assistance to hire cops and firefighters, a mortgage refinancing program, and a few other smaller items.

via Mother Jones.

The consensus of economists is that President Obama’s jobs plan, if enacted as proposed, would lower the unemployment rate would fall by a percentage point or so, and increase the economic growth rate by a percentage point or so.

We don’t know what would happen after the stimulus runs out.  Would employment and economic activity start to rise on their own?  Or would they stop growing, as happened after the original stimulus program was enacted?  In a normal economic cycle, a stimulus of this size would be enough to boost the economy into growth.  I think the current economic crisis is much more than that.

Devoting more than half the stimulus to tax cuts is not good policy, and may not even be good politics.  Most Americans are so deep in debt that, if they get a little extra money, they will pay their current bills rather than increase their spending.  Tax credits aren’t going to spark business activity unless there is demand for the goods and services that businesses provide.

Much of the original stimulus consisted of tax cuts, but many Americans don’t check their withholding taxes, and don’t believe that President Obama reduced taxes.  It is doubtful that he would get any more political benefit from a second round of tax cuts.

Cutting payroll taxes for Social Security is a bad idea, even though the difference would be made up out of general revenue, because it breaks down the barrier between the Social Security trust fund and the general government budget and weakens the taboo against tampering with Social Security.

I’m glad to see provision in the plan for repair of bridges, dams and other infrastructure, but any meaningful project will take years.  There are very few meaningful “shovel ready” infrastructure products except repaving roads.  Unfortunately I think the economy still will be in the doldrums when the bigger infrastructure projects are underway.

One thing that would help the economy would be to give Americans debt relief.  Some have proposed a “cramdown” plan, to give federal bankruptcy judges the authority to restructure mortgage debt so that the property-owner could pay.  I would favor something similar with student loans.

I have no way of knowing how hard John Boehner, Mitch McConnell, Eric Cantor and the rest of the Republican leadership will fight President Obama’s plan, or what will be left in any bill that passes.  And I have no way of knowing how hard President Obama and the Democratic leadership will fight for the bill, how much it represents the President’s priorities and how much it is a response to the pressures of the moment.

Click on Fact Sheet: The American Jobs Act for the White House outline of President Obama’s jobs plan.

Click on Two Cheers and One Jeer for the American Jobs Act for Robert Reich’s thoughts.

Click on Obama proposes raising taxes on the wealthy to pay for his $447 billion jobs plan for a report in the Washington Post about how the President proposes to pay for his jobs plan.

Click on GOP grumbles about jobs plan for a Politico article about Republican reaction to the President’s plan.

Click on Cantor to Obama: Let’s Nix More Than Half Your Jobs Bill for the reaction of the Republican House Majority Leader. [Added 9/13/11]

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