Two cheers for the President and his America’s Jobs Act. Cheer Number One: In presenting it to a joint session of Congress, he sounded as passionate and determined as he’s ever sounded.
Second cheer: He laid out the problem correctly and effectively. He explained why jobs and growth must be the nation’s first priority now — not the federal deficit. The economy is in crisis. People are hurting. So government must act, and act quickly. It’s irresponsible at a time like this to suggest that government should simply close down.
But a jeer because the jobs plan he presented isn’t nearly large enough or bold enough to make a major dent in unemployment, or to restart the economy.
$450 billion sounds like a lot – and is more than I expected — but some of this merely extends current spending (unemployment benefits) and tax cuts (in Social Security taxes), so it doesn’t add to aggregate demand.
The net new boost to the economy is closer to $300 billion. That doesn’t approach even half the gap between what the economy is now producing and what it could produce at or near full employment.
And much that $300 billion is in the form of temporary tax cuts to individuals and companies. Some of these make sense — enlarging the Social Security tax cut, extending it to employers, and giving small businesses a tax holiday for new hires.
But temporary tax cuts haven’t proven to be particularly effective in stimulating new spending in times of economic stress. People tend to use them to pay off debts or increase savings. Companies use them to reduce costs, but they won’t make additional hires unless they expect additional sales – which won’t occur unless consumers increase their spending.
That leaves some $140 billion for infrastructure – improving outworn school buildings, roads, bridges, ports, and so on. And $35 billion to help cash-starved states avoid more layoffs teachers. Both good and important but still small relative to the overall need.
Why did the President include so many tax cuts, and why didn’t he make his proposal sufficiently large to make a real impact on jobs and growth? Because he crafted it in order to appeal to Republicans. To get it enacted, he needs their votes.
