Obama’s stimulus: US President Barack Obama’s $447-billion jobs plan should please everyone from Federal Reserve chairman Ben Bernanke to the International Monetary Fund’s boss, Christine Lagarde. Both policymakers have suggested America put stimulus ahead of austerity. Congressional Republicans may be less thrilled. But the tax cuts may pass Congress. Expect Wall Street to start boosting 2012 US growth forecasts.
All summer, bank economists have been slashing their GDP estimates for next year. Yet, at the same time, many have continued to assume that more than $100 billion in temporary payroll tax cuts for workers would be extended through 2012. The new White House proposal raises that total to $175 billion and also tacks on a $65-billion payroll tax reduction for employers. Those two elements make up the bulk of Obama’s ‘American Jobs Act’ and are the bits mostly likely to earn GOP support on Capitol Hill. The president’s models calculate the whole package could boost growth by two percentage points. Some $200 billion in infrastructure spending and unemployment benefits will be a tougher sell. Republicans may well substitute their own stimulus ideas for those items, so that the package ends up composed entirely of tax cuts.
The most likely addition is a temporary reduction in the taxes on foreign earnings repatriated by multinational corporations. The US Chamber of Commerce estimates such a tax holiday could boost growth by a full percentage point next year. White House economists criticise the idea as providing too little bang for the buck, but it could be the price for getting a deal. Either way, an agreement can get done.
Then, it will up to the new debt reduction “supercommittee” in Congress to figure out a way of paying for a year of stimulus over the next decade. The panel was already going to have a tough time finding $1.2 trillion in deficit cuts, its current mandate. Obama would increase the bipartisan group’s burden by more than a third. Yet, with borrowing costs for Uncle Sam incredibly low, markets seem unconcerned about federal debt levels. And, with re-election perhaps riding on getting the plan passed, Obama probably isn’t too worried either.
