On 9 September 2011, President Obama presented the American Jobs Act to Congress. The Act is effectively a $447 billion plan (around 3% of GDP) to create jobs in the US using a combination of tax incentives and infrastructure spending. The size of the plan is bigger than market analysts had expected, which was around $300 billion. Overall, the plan has merit and could help to boost the economy, meaningfully, in 2012. (It could also be argued that some of these initiatives should have been introduced some time ago, instead of initiatives such as the “cash for clunkers” deal).
The American Jobs Act has four key components:
Ø Tax Cuts to Help America’s Small Businesses Hire and Grow ($70bn)
Ø Putting Workers Back on the Job While Rebuilding and Modernizing America ($140bn)
Ø Pathways Back to Work for Americans Looking for Jobs ($62bn)
Ø More Money in the Pockets of Every American Worker and Family ($175bn)
Below is a very brief explanation of each major component:
1. TAX CUTS TO HELP AMERICA’S SMALL BUSINESSES HIRE AND GROW (total $70bn):
A payroll tax cut to businesses, with a focus on small employers ($65 billion).
Ø Extend the payroll tax cut to firms by cutting in half their payroll tax on the first $5 million in payroll. Next year, instead of paying 6.2% on their payroll expenses, firms would pay only 3.1%. The plan is to provide tax cuts for all firms, with focused relief on the 98% with less than $5 million in payroll.
Extend 100% business expensing through 2012 ($5 billion).
Ø The President is proposing an extension of the 100% expensing provision that he signed into law in December 2010, which rewards firms for making investments by allowing them to deduct the full value of those investments from their tax obligations through 2012. Extending 100% expensing for an additional year would put an additional $85 billion in the hands of businesses in 2012. Most of this relief would be recouped by the Treasury as businesses regain their strength.
2. PUTTING WORKERS BACK ON THE JOB WHILE REBUILDING AND MODERNIZING AMERICA (total $140bn):
Preventing Teacher Layoffs and Keeping Police Officers and Firefighters on the Job ($35 billion)
Ø Invest $35 billion to prevent up to 280 000 teacher layoffs and keep police officers and firefighters on the job. (As many as 280,000 education jobs are at risk in the upcoming school year due to continued state budget constraints).
Modernizing At Least 35 000 Public Schools – from Science Labs and Internet-Ready Classrooms to Renovated Facilities($30 billion)
Ø Substantial investments in school infrastructure, modernizing and upgrading America’s public schools. The range of critical repairs and needed construction projects would put hundreds of thousands of construction workers, engineers, maintenance staff, boiler repairman, and electrical workers back to work.
Immediate Investments in Infrastructure ($50 billion)
Ø In order to jumpstart critical infrastructure projects and create hundreds of thousands of jobs, the President’s plan includes $50 billion in immediate investments for highway, highway safety, transit, passenger rail, and aviation activities.
National Infrastructure Bank ($10 billion).
Ø To direct Federal resources for infrastructure to projects that demonstrate the most merit and may be difficult to fund under the current patchwork of Federal programs, the President is also calling for the creation of a National Infrastructure Bank (NIB).
Project Rebuild: Putting People Back to Work Rehabilitating Homes, Businesses and Communities($15 billion)
Ø The bursting of the housing bubble and the Great Recession that followed has left communities across the US with large numbers of foreclosed homes and businesses, which is weighing down property values, increasing crime, and standing in the way of economic recovery. In these same communities there are also large numbers of people looking for work, especially in the construction industry, where more than 1.9 million jobs have been lost since the beginning of the recession in December 2007. The President is proposing Project Rebuild to help address both of these problems by connecting Americans looking for work in distressed communities with the work needed to repair and repurpose residential and commercial properties.
3. PATHWAYS BACK TO WORK FOR AMERICANS LOOKING FOR JOBS (total $62bn):
Reform Unemployment Insurance System to Provide Greater Flexibility, While Ensuring 6 Million People Do Not Lose Benefits ($49 billion)
Ø Equip the unemployment insurance (UI) system to better address the current long-term unemployment challenge.
Tax credits for businesses that hire the long-term unemployed ($8 billion)
Ø A special bonus credit of up to $4 000 for firms that hire the long-term unemployed.
Investing in Low-Income Youth and Adults ($5 billion)
Ø Strategy to expand employment opportunities for communities that have been particularly hard hit by the recession, and that may take longer to get back on their feet due to greater income losses and smaller savings than higher-income workers.
4. MORE MONEY IN THE POCKETS OF EVERY WORKER AND FAMILY PROVIDING TAX RELIEF TO 160 MILLION WORKERS (total $175 billion):
Cutting Payroll Taxes in Half for 160 Million Workers Next Year ($175 billion)
Ø The President’s plan will expand on the tax cut enacted in December by cutting employees payroll taxes in half next year. Rather than having 6.2% of their wages deducted in Social Security taxes, workers will pay only 3.1% next year. This extension will provide a payroll tax cut worth $175 billion to American workers in 2012.
Unfortunately, it is hard to make a complete assessment of the effectiveness of the stimulus, since it is unknown how much of it will actually be adopted and, if so, how it will be funded. As it stands, the plan would have a significant impact on US GDP growth in 2012, which is currently projected at only around 2%, but the chances of the plan being fully adopted and funded would only be around 50/50 given the divided nature of the US Congress.
