US President Barack Obama channelled the national frustration with the economy that threatens his political standing and challenged the US Congress to pass a $447-billion jobs plan tilted heavily towards the Republican prescription of tax cuts.
The president, speaking before a joint session of Congress, demanded six times that lawmakers act “right away” on a plan that would boost spending on infrastructure, stem teacher layoffs and cut in half the payroll taxes paid by workers and small business owners.
“The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” Obama told the lawmakers yesterday.
Job growth stalled last month and the unemployment rate has hovered at or above nine per cent for more than two years. The president’s job-approval ratings are falling to new lows as public doubts about his stewardship of the economy rise. Public opinion of Congress has dropped even lower.
Tax cuts account for more than half the dollar value of the president’s latest plan to turn the economy around, and administration officials said they believe that will have the greatest appeal to Republicans in Congress. The president dared his adversaries to oppose a provision that would extend and deepen payroll tax cuts due to expire on 31st December.
“I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live,” he said. “Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”
Common ground
House Majority Leader Eric Cantor, a Virginia Republican who has been a frequent critic of Obama, said there may be areas of common ground, such as tax reductions for small businesses.
“That’s something we Republicans have been advocating for quite some time now,” Cantor said in a Bloomberg Television interview. He also indicated Republicans may support extending the payroll tax for workers.
Still, some other Republicans were hesitant.
“I am not sure that a payroll tax holiday is really going to spur the economy,” said Representative Bill Huizenga, a Michigan Republican. He added that “a better tax break would be something that would spur along innovation and wealth generation” and creates “ancillary jobs.”
The 2012 presidential election and the political consequences of public blame for inaction on joblessness formed an undercurrent in the speech. Even as Obama warned against delay, he noted “the next election is 14 months away.” He said he would take his case for passage of the bill “to every corner of the country.”
On the Road
He speaks on Friday in Richmond, Virginia, in Cantor’s congressional district. On September 13 he’s scheduled to travel to Columbus, Ohio.
Hours before Obama addressed Congress and a national television audience, Federal Reserve Chairman Ben S Bernanke said policymakers will discuss at their next meeting this month the tools they could use “to promote a stronger economic recovery in the context of price stability.” In a speech to economists in Minneapolis, Bernanke stopped short of signalling what he believes is the central bank’s best option to aid the economy.
Treasuries and the Standard & Poor’s 500 Index futures declined after Obama detailed his plan. Ten-year yields climbed two basis points to 1.99 per cent as of 10.35 am in London. S&P 500 futures fell 0.3 per cent.
Covering the Cost
Obama stressed that he would pay for the entire jobs package with offsetting spending cuts and increases in tax revenue over the next decade. He said he would announce the offsets by 19 September.
Obama didn’t mention the total cost in his televised address. Nor did he utter the word “stimulus,” though Republican lawmakers were quick to draw comparisons with the $825-billion spending and tax-cut program of 2009 that has become unpopular with voters.
Representative Kevin McCarthy of California, the third-ranking Republican in the House, dubbed the new plan “Stimulus 2.0.”
The package includes spending favoured by Democratic constituencies. It would include a $105-billion infrastructure proposal for school modernisation, transportation projects and rehabilitation of vacant properties. Most of the economic impact from the infrastructure spending would be next year though some of it would come in 2013, according to an administration official, who briefed reporters on condition of anonymity.
‘Make a Difference’
“Ultimately, our recovery will be driven not by Washington, but by our businesses and workers,” the president said. “But we can help. We can make a difference.”
The administration estimated that $35 billion it’s seeking in direct aid to state and local governments to stem layoffs of educators and emergency personnel would save the jobs of 2,80,000 teachers, according to a White House fact sheet.
The centrepiece of the plan is the cuts in payroll taxes, which cover the first $1,06,800 in earnings and are evenly split between employers and employees. Obama would reduce the portion paid by workers next year to 3.1 per cent from 6.2 per cent. The rate had been cut two percentage points under the terms of a tax deal reached last year, and that reduction is set to expire on 31st December.
The White House also would use temporary payroll tax reductions next year to offer incentives for new hiring and assist small businesses.
Helping smaller firms
Businesses would get the same 3.1-point reduction on taxes they pay on the first $5 million of their payroll, a limit that skews the benefit toward smaller firms. The full 6.2 per cent employer contribution would be waived on the first $50 million net increase in a company’s payroll.
The proposal includes additional tax credits for hiring veterans and workers who have been unemployed more than six months. The administration also wants to make it illegal for employers to discriminate against applicants who are unemployed.
The fiscal boost from the jobs package next year would be larger than in the first year of the 2009 economic stimulus, said Mark Zandi, chief economist at Moody’s Analytics Inc.
Zandi, who was briefed on the plan before the president’s speech, forecast that passage of the entire jobs package would add two percentage points to economic growth next year and bring down the unemployment rate by one percentage point compared with current policy, under which a temporary payroll tax cut and extended unemployment benefits both expire December 31.
Long-Term unemployed
In a step aimed at the long-term jobless, Obama proposed granting states authority to pay unemployment benefits to people who have been out of work for more than six months while they train for jobs at businesses at no cost to the employer for up to eight weeks.
States also would be able to use unemployment-insurance funds to make up for wages lost by workers whose hours were cut back in lieu of a layoff and for those 50 and older who took a lower-paying job after a layoff.
The White House wants to incorporate the changes in the unemployment-insurance program along with a one-year continuation of extended unemployment benefits. The extended benefits cover jobless workers for up to 99 weeks.
The administration considered and rejected a temporary repatriation holiday that would allow companies to return overseas profits without paying corporate income taxes on the proceeds. The White House concluded that it wouldn’t have as great an impact on job growth as the new hiring incentives, the administration official said.
The official said the small businesses targeted by the tax incentives confront credit constraints and often have sustained declines in the value of the collateral they can use.
