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Obama's jobs speech A call to action

Sep 9th 2011, 3:13 by G.I. | WASHINGTON

AS JOB growth has ground to a halt and stock markets have swooned, the outlook for both the American economy and Barack Obama’s presidency has dimmed. The jobs package he unveiled in a much anticipated speech before Congress on September 8th was a calculated attempt to resuscitate both. His “American Jobs Act” consists of a hefty $447 billion worth (roughly 3% of GDP) of new and renewed tax cuts and spending that, he hopes, will prevent a fiscal vice from pushing the economy into recession early next year. Its provisions were carefully chosen to stimulate job growth immediately while maximising the political price Republicans will pay to obstruct it.

Mr Obama proposed not only extending a 2% payroll-tax cut scheduled to expire in December, but increasing it to 3.1%—half the employee’s normal contribution to Social Security. He also called for an equivalent 3.1% cut in the employer’s payroll tax for the first $5m of payroll, and elimination of the entire 6.2% tax on the wages of new hires or on pay raises for current employees. At $240 billion, those provisions account for more than half the plan’s price tag.

He also wants to keep extended unemployment insurance benefits rather than let them expire in December while offering states flexibility to use the plan to encourage the unemployed to return to work. That could involve work sharing, which Germany used effectively to spread the decline in economic output across working hours rather than head count; letting the unemployed collect benefits while training or doing volunteer work; and wage insurance, which subsidises the wages of people whose new job pays less than their old. That would be a welcome shift for America’s safety net which spends too much on income support and too little reintegrating the jobless into the labour market. Still, the sums are small relative to the scope of the problem.

At $140 billion the bulk of the remaining money would be funnelled into public works and state aid. Mr Obama would send $25 billion to state and local governments to refurbish 35,000 schools and $35 billion to keep teachers, police and firefighters employed. Another $50 billion would go to immediate investments in highways and public transport, and $10 billion for an infrastructure bank that would try to leverage private capital for public works. While such spending has a relatively high impact on the economy, it has proven difficult to find projects that are both “shovel-ready” and worth doing.

Prevention of a double-dip into recession is the president's priority. In February, his budget office predicted the economy would grow by 3% this year. Serial disappointments forced the White House to downgrade that to just 1.6% last month. Meanwhile, the fading impact of his original $825 billion stimulus and the expiration of $200 billion more in support added last December threaten to knock 2% from gross domestic product next year. Furthermore, tax collections have risen more than expected this year, which represents a further unanticipated fiscal tightening. Unaddressed, those factors could move the economy into recession, if it isn’t there already. A senior administration official predicted that Mr Obama’s plan, if fully enacted, would result in fiscal policy being roughly neutral, rather than a drag, next year.

The president sought to make it as difficult as possible for Republicans to obstruct his plans by ensuring each of his proposals had some Republican parentage. For example, the infrastructure bank is modelled on a measure proposed by John Kerry and Kay Bailey Hutchison, Democratic and Republican senators respectively. The US Chamber of Commerce, a fierce opponent of much of Mr Obama’s agenda, has been a vocal advocate of more infrastructure spending. The use of unemployment benefits to retrain the jobless is based on a Georgia programme that Republicans have praised.

Nonetheless, there are limits on Mr Obama’s appetite and freedom to compromise. His liberal backers threatened to desert him as he repeatedly caved in to Republicans, extending George Bush’s tax cuts for the wealthy, agreeing to steep spending cuts in return for an increase in the debt ceiling, and just last week delaying new smog rules. His language and tone tonight were combative, at times hectoring. Noting how many Republicans have pledged never to raise taxes, 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.”

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