President Obama introduced his so called jobs plan, spending $447 billion. 51% of this is tax cuts, 31% is infrastructure and local aid and 14% of unemployment insurance. Firstly, it has been shown time and time again, tax cuts do not create jobs. We just showed one would be better off hiring people to cut grass with scissors than enact a payroll tax cut. The payroll tax cuts alone are $240 billion, or over half of Obama's plan.
So why then does Obama push policies that are proved not to work? The only thing we can think of is to justify destroying social security and of course Medicare, which Obama has already promoted as something to cut under the guise of deficit reduction. Payroll taxes are actually the funding for social security and Medicare, otherwise known as FICA. While claims money will be taken out of the general budget to cover this underfunding of social security, that's hard to believe when right at the same time, Obama is promoting cutting social security and Medicare to balance the budget. Social safety nets, not defense, or consideration of a transaction tax are the places where Obama will pay for this so called jobs plan. This jobs plan is really tax cuts, which will be paid for, once again, on the backs of the middle class, this time by slicing and dicing social security.
Here's the so called America Jobs Act:
Tax Cuts to Help America’s Small Businesses Hire and Grow
Cut employer payroll taxes in half & bonus payroll cut for new jobs/wages
Extend 100% expensing in 2012
Putting Workers Back on the Job While Rebuilding and Modernizing America
Teacher rehiring and first responders
Immediate surface transportation
Rehabilitation/repurposing of vacant property (neighborhood stabilization)
National wireless initiative
Veterans hiring initiative
Pathways Back to Work for Americans Looking for Jobs
UI Reform and Extension
Jobs tax credit for long term unemployed
Pathways back to work fund
More Money in the Pockets of Every American Worker and Family
Cutting employee payroll taxes in half in 2012
That said, some of the tax cuts, at least, are being tied to direct hires, as incentives for employers to hire. Yet with a demand problem and a jobs crisis, a 6.2% reduction of no funds available to hire with is still zero. This is small business. We know corporations as a whole have had record profits and are sitting on $1.8 trillion in cash.
One of the better ideas of this plan is to enable unemployment insurance to subsidize part time hours. This allows employers to cut hours, instead of simply laying off workers completely. Germany does this and it's helped their economy. In other words, it's proven to work and keep unemployment levels from soaring.
The infrastructure bank details are too sketchy to know it's effectiveness, but in principle sounds like one of the better proposals. Yet, still, why is one so interested in partnering with the private sector instead of managing infrastructure projects through existing agencies as well as creating direct job hires?
We've heard many a time about this administrations' scam claiming to help homeowners. Yet another short on details proposal claiming to help people to qualify for 4% mortgage refinancing is in question. Last we heard the lending standards had become so tight, no one who actually needs financial help can possibly qualify for refinancing.
On a side note, there is hope the Federal Reserve might set interest to zero on money stashed at the Fed by private banks, forcing banks to stop sitting on their trillions in cash and release it into the economy, as lending.
A second step under consideration at the Fed, one getting mixed reviews internally, would reduce or eliminate a 0.25% interest rate the Fed currently is paying banks that keep cash on reserve with the central bank.
From the speech, instead of confronting age discrimination in technical occupations, there is no shortage of American engineers and scientists, we have another backdoor method to displace U.S. STEM with foreign guest workers, this time through training, so called internships, which are backdoor guest worker Visas through the OPT program.
It seems the silence on China's currency manipulation is also deafening at this point. Promoting more bad trade deals shown to lose jobs isn't a good sign this administration or Congress is in economic reality either.
We'll have more on the specifics on this latest plan, with GDP multipliers and details, as information is updated and given. For now I recommend economist Menzie Chinn's pre-game highlights of some of the proposals with their corresponding GDP multipliers, current output gap estimates and a few new estimates of real GDP percentage gain.