US President Barack Obama’s new jobs plan would ignite growth in the deteriorating economy, though it is unlikely to survive intact in a bitterly divided Congress, economists said.
The US$447 billion package of tax cuts and new government spending that Obama proposed to Congress on Thursday will be delivered to lawmakers as the American Jobs Act.
“The devil is in the details, and this bill’s devils are likely to be larger than usual, in order to get through a Congress that has so recently faced a massive budgetary and fiscal challenge to meet obligations already on the books,” Jason Schenker at Prestige Economics said.
Photo: Reuters
Schenker highlighted some of the major problems with the proposal: Funding was not addressed, no estimates of the number of jobs it would create were included and the actual legislation was not presented.
Obama said the jobs plan, costing half as much as his 2009 stimulus program criticized by Republicans, would be fully paid for in the years to come under a new budget deficit-reduction plan that he will propose on Sept. 19.
Republicans oppose new spending in the face of huge US deficits and debt. After political gridlock last month nearly caused a sovereign debt default, a panel of Democratic and Republican lawmakers was tasked with cutting at least US$1.2 trillion over the next 10 years from the budget.
Some economists said that the Obama jobs plan would spur GDP growth — below a feeble 1 percent in the first half of the year — and job creation amid high unemployment.
“President Obama’s jobs proposal would help stabilize confidence and keep the US from sliding back into recession,” Mark Zandi at Moody’s Analytics said.
Zandi estimated that the plan would add 2.0 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.
Proposed tax cuts make up more than half of the plan, aiming to put money in consumers’ pockets and encourage hiring as the jobless rate remains stuck at 9.1 percent and 14 million workers are seeking jobs.
“We estimate that the American Jobs Act, if enacted, would give a significant boost to GDP and employment over the near term,” Macroeconomics Advisers economists said in a research note.
Tax cuts, combined with spending increases aimed at maintaining state and local employment and funding infrastructure modernization, would boost GDP by 1.3 percent by the end of next year, the Macroeconomics Advisers economists estimated.
However, Robert Brusca at FAO Economics said the president’s plan, though “ambitious,” falls short of actually stimulating demand in the economy.
“It lacks the macroeconomic punch,” he said. “What the economy needs is demand.”
For example, he said, small businesses, the biggest job engine in the US, would be reluctant to add workers without an increase in activity “even with a dangling tax break” because they tend to operate on simple cash flows.
“If the money’s not there, you’re not going to see an investment made,” he said.
Heidi Shierholz at the Economic Policy Institute estimated the Obama plan could boost employment by around 4.3 million jobs, taking “a big bite” out of the shortfall in jobs.
However, Moody’s Zandi noted that most of the tax cuts and spending increases are temporary and will fade during 2013, resulting in weaker growth.
“Presumably the economy will be strong enough to handle it by then, but that is far from certain. Moreover, the plan fails to address the ongoing foreclosure crisis and housing slump, major impediments to the recovery,” he said.
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