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Sep 13 2011

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The American Jobs Act and Groundhog Day

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De ja vu all over again...

This is what we waited more than a month for?

All the hype.  All the expectations. All the hope.

If it wasn’t so consequentially disappointing, we’d all be rolling on the floor, laughing uncontrollably.

So that we understand the proposition at hand:

In 2009, President Obama proposed the American Recovery and Reinvestment Act (ARRA), or better known as the Stimulus bill.

With other measures announced later, this nearly trillion dollar spending binge provided massive (but temporary) funding to state and local governments, teachers and first responders (public sector unions)  and “shovel-ready” projects.

The Stimulus also provided “Happy Meal” tax relief targeted at taxpayers earning less than $100,000 (including, interestingly, those who didn’t pay federal taxes) and was divided further into individual paychecks, as opposed to a lump sums, with the intention that workers would use the money instead of saving it.

On a weekly basis, it was a barely noticeable increase that did little if anything to stimulate demand.

At that time, President Obama was determined to allow the Bush tax cuts expire for “wealthy” Americans at the end of 2011.

Results?

In February 2009, when the Stimulus was passed,  the total number of Americans who were unemployed, involuntarily employed temporarily or marginally attached to the labor force numbered 23 million.

In August 2011, after a trillion dollars in federal spending that included “Cash for Clunkers,” “Making Homes Affordable,” as well as billions for targeted green projects, the comparison rate is 25.4 million.

That net, 2.5 million jobs lost is amplified for the worse when you consider that the employment to population ratio has actually dropped from 60.3% in February 2009, to 58.2% this past August.

Speaking before a joint session of Congress on February 24, 2009, President Obama said of the Stimulus bill:

“over — over the next two years, this plan will save or create 3.5 million jobs.  More than 90 percent of these jobs will be in the private sector….”

By the President’s own metric, the facts conclusively prove that the Stimulus was a costly failure to the American treasury and for the American people.

So, given nearly three years of on the job training and practical experience, what is President Obama proposing?

Funding for state and local governments to support public sector unions, “shovel-ready” construction projects, and targeted and temporary tax relief for companies that hire an exclusive (if deserving) cohort of individuals, and more generalized, if temporary tax relief for small business.

The package totals $447 billion.

To pay for it, the President wants to eliminate tax loopholes for Americans making more than $200,000 – which represents $400 billion in increased taxes.

To make up the rest, the package calls for modifying the tax code to tackle the President’s favorite bugaboos; tax relief for firms doing oil and gas exploration, taxing hedge fund managers profits as ordinary income and of course, changing depreciation rules to increase the cost of corporate jets.

Have we learned nothing?

A few things come immediately to mind.

First, and most obviously, if a trillion dollars in government stimulus resulted in an additional 2 million plus unemployed, how will a government spending program that is half the size have any positive impact?

Indeed, the very fact that the President insists on spending measures that have a time horizon dilutes any stimulative impact by creating market uncertainty when spending ends and rates return to normal.  There is the possibility of a short term boost – as “cash for clunkers” and the first time home-buyers tax credit proved.

But once the program ends, so does the demand.

With that in mind, there is nothing in the President’s jobs program that fixes structural fiscal problems, or even seeks to create market certainty, which is the cornerstone of organic and sustained economic growth and job creation.

Second, recall President Obama’s statement from December 15, 2010, “So I urge members of Congress to pass these tax cuts as swiftly as possible. Getting that done is an essential ingredient in spurring economic growth…”

And now his opening line from the jobs speech before Congress last week, “Tonight we meet at an urgent time for our country.  We continue to face an economic crisis that has left millions of our neighbors jobless.”

So, if the tax relief that the President signed into law last December was essential to the economy amid sluggish growth, and according to POTUS, last week, we are in economic crisis today, then how do tax increases help now with overall economic growth?

It makes no sense.

So, that we have this straight, to pay for a jobs program that is the philosophical “mini-me” of the failed 2009 Stimulus, the Administration is proposing tax increases, which, only nine months ago, it said were a potential drag on economic growth and job creation.

This represents a new order economic confusion and philosophical chaos.

And sadly, there are knock-on complications to just proposing the plan.

It is hard to imagine that the Super-Committee that has been set up to find $1.5 trillion in cuts before December can be happy with the President’s announcement.  Indeed, some of the tax loopholes the President wants to close to fund his job’s plan are the very same provisions that lawmakers were depending on to get to their $1.5 trillion in spending cuts.

Any serious consideration of the President’s plan means that the Super Committee must search further and dig deeper to find meaningful savings that will allow the government to avoid catastrophic, automatic across-the-board spending cuts in the next 90 days.

The President hasn’t simply proposed a measure that holds little promise of healing the economy. After an politically toxic summer featuring brinkmanship on the debt ceiling, the President is now interfering with the work of the Super Committee, by proposing distinct tax increases that make the work of the Committee even harder.

The only way to make sense of the President’s plan is to see it from David Axelrod’s office in Chicago.

President Obama is seeking to aid small businesses, veterans, teachers and first responders, to create summer jobs for teenagers, fix crumbling infrastructure, and to do so with a “common sense’ mix of spending and targeted tax relief. To pay for it, he is only asking the rich and wealthy to pay their fair share.

It makes Republicans – or anyone who opposes the President’s plan for that matter – the defenders of oil interests, robber baron hedge fund managers and the private jet set , all at the expense of the working man, trying to get ahead.

It is the wost form of class warfare – timid, tedious and troublesome; excellent red meat on the campaign stump, but indefensible policy.

In responding, Congress should treat it as such.

 

1 comment

  1. Makalah

    Thanks for the insight. It bnrigs light into the dark!

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