Obama’s Jobs Plan: What He Should Say


NEW YORK (MainStreet) — President Obama will give a major speech next month outlining his proposals to create jobs and help the unemployed and laying out a framework for improving the U.S. economy that will likely set the grounds for debate going into the 2012 elections.

Early indications are that the president’s policy recommendations will focus on a mix of tax cuts, infrastructure spending and providing more aid to the unemployed -- policies that the president and many economists have emphasized in the past. But we spoke with labor experts to find out what Obama really needs to say this time around to spur job growth.

Targeted Payroll Tax Cuts

In a very real sense, the millions of unemployed and underemployed Americans fell off the political map this year, as Washington focused more on raising the debt ceiling than providing additional assistance to those who continue to struggle with finding sustained employment.

Two proposals that the president might emphasize this time around are extending unemployment benefits to help provide a lifeline to the long-term unemployed, which Congress has done multiple times in the past, and renewing the payroll tax cut approved in December 2010 that is set to expire at the end of this year, which decreases the taxes workers pay on Social Security benefits so they can pocket more of their paychecks.

But many economists say the president needs to go further.

"Just doing this isn’t a path towards fixing the jobs crisis, it’s just following a ‘do no harm’ principle,” said Andrew Fieldhouse, a federal budget policy analyst with the Economic Policy Institute, a nonpartisan think tank. “These policies do not actually boost economy activity, it’s just that allowing them to lapse would hurt it.”

Fieldhouse advocates for instituting a revised payroll tax cut that targets low- to middle-income workers, rather than all employees, which he argues would be more effective in boosting economic activity, since the tax rebates will be more significant to these workers relative to their overall income. To emphasize this point, Fieldhouse points out that even Warren Buffett receives an annual rebate of $2,136 under the current payroll tax cut model, which is money that won’t likely help him or the economy very much.

By refocusing the tax cuts to working families with a “higher propensity to consume,” Fieldhouse predicts the government would see greater consumer spending and a corresponding increase in employment from the businesses that benefit from that spending.

Infrastructure Projects

President Obama emphasized the need for infrastructure projects to create new jobs in this year’s State of the Union speech and attempted to implement this approach as part of the stimulus package in his early days in office, but according to several economists, he has not been bold enough. They suggest he needs to double down on the infrastructure message in his speech next month.

“It seems to me pretty clear at this point that general tax reductions (in income or payroll taxes) are not doing as much to boost demand for goods and services produced in the U.S. as we could do if we simply started government capital projects that put unemployed construction and heavy manufacturing workers into jobs,” said Gary Burtless, a labor economist with the Brookings Institute.

As Burtless and others point out, only a small percentage of the money from the Recovery Act went directly to infrastructure projects like fixing up highways and bridges, with the vast majority going to fund tax cuts, financial aid to states and job training programs. Part of the reasoning for this, Burtless says, was the belief that infrastructure projects do not lead to immediate job creation -- or as Obama famously put it, there is “no such thing as shovel-ready projects.”

“Much of the evidence from post-war anti-recession efforts suggests that infrastructure projects would be mounted too slowly to generate much extra demand during the worst months of the downturn,” Burtless said. “However, this recession is deeper and the shortfall in aggregate demand will last longer than was the case in previous recessions.”

Burtless suggests the Obama administration and Congress could impose a deadline for implementing infrastructure spending projects -- perhaps midway through 2014 -- and also a minimum expenditure requirement for such projects. He also thinks Obama could take back funds from states who fail to meet these requirements, thereby ensuring faster implementation and more jobs in the short-term.

Work-Sharing Programs

Putting Americans back to work is only part of the challenge facing our economy, and the president must also find ways to keep companies from making additional layoffs. But according to Mark Price, a labor economist with the Keystone Research Center, the solution to the latter problem may be simpler than it seems: implement work-sharing programs.

The shining example of this policy is Germany, where employees at a given company may work fewer hours and take a pay cut in order to prevent that company from having to lay off workers. This model is made possible in part by a special government subsidy that helps offset the employee’s lost wages.

“Similar policies here in the United States could slow the pace of layoffs we are seeing and thus shorten the length of time it takes for unemployed workers to find a new job because they are competing with fewer unemployed workers for each job opening,” Price said.

Federal Aid to States

The balance sheets of many states are so bleak that some have had little choice but to lay off thousands of public employees, further adding to the nation’s job crisis, which is why economists argue Obama should urge Congress to lend a helping hand.

“There’s no reason states should be laying off teachers, cops and firefighters right now,” Fieldhouse said, noting that the layoffs may only intensify if the federal government doesn’t step in. “More government grants to states for Medicaid and direct employment of teachers and cops would reverse that trend and meaningfully boost employment.”

What’s more, Fieldhouse emphasizes that doing so would create jobs immediately, unlike with infrastructure projects, since any new money pumped into states would allow them act quickly to rehire recently laid off workers.

Tax Incentives for Businesses

Finally, Obama should consider incentivizing businesses to hire again by providing tax breaks to those who do -- a policy that has traditionally garnered wide support in Congress from Democrats and Republicans alike.

One possibility that Burtless recommends is allowing business to temporarily waive their federal insurance contributions tax (which goes to Medicare and Social Security costs) for any new employees they hire, which he estimates would cut the cost of bringing on a new worker by 6% to 7.5%. This tax break could be limited to 2012 and perhaps 2013, and according to Burtless, it could include a stipulation that the company’s total wage payments be greater than the previous tax year to prevent the possibility that a business might simply take an existing full-time job and split it into two part-time jobs to get the tax break. After all, that’s not the right way to create jobs.

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