President Barack Obama last night outlined a $470 billion package of short-term measures intended to jumpstart the economy, including job creation in the life sciences. He hopes the American Jobs Act will pass an increasingly partisan Congress and pass muster with voters as he pursues re-election over the coming year.
Addressing a joint session of Congress, Obama called for cutting in half, from 6.2% to 3.1%, the payroll taxes paid by employers on the first $5 million of wages to employees next year. The president’s proposal would eliminate payroll taxes for businesses that increase their payrolls by up to $50 million, either by adding new workers or raising the wages of their current employees.
The Obama administration projects the combined cost of the employer payroll tax cuts at $65 billion but that it will benefit 98% of “small” businesses, a term undefined by the president in his address and in materials posted by the White House on its website.
Also with hiring in mind, the president proposed further cutting the Social Security employee payroll tax rate for a year, from 4.2% to 3.1%, at a projected cost of $175 billion. Obama says the cut would benefit 160 million U.S. workers and produce a $1,500 annual tax savings for “typical” households.
The current employee payroll tax reduction or “holiday” from the standard 6.2% rate took effect this year as part of the deal by which Obama and Congressional leaders extended the tax cuts enacted by his predecessor, George W. Bush. Without action, the rate will revert to 6.2%.
“Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers. But we can help. We can make a difference. There are steps we can take right now to improve people’s lives,” Obama told members of Congress in his prime-time address last night.
Obama’s jobs plan also extends through 2012 an immediate 100% tax deduction for companies that invest in new plants and equipment. The administration pegs the cost of the extension at $5 billion.
The American Jobs Act includes provisions aimed at achieving two long-term administration policy goals: developing an infrastructure repair program and extending unemployment insurance. Obama proposes spending $50 billion to rebuild highways, railroads, airports, and waterways; another $10 billion to create a National Infrastructure Bank to finance the repair projects; and $49 billion to extend unemployment insurance and reform some of its rules.
The unemployment insurance reforms would allow states to use those funds to insure the wages of older workers to promote their re-employment, fund unemployed workers who start their own businesses; fund workers who cut their hours or “work-share” in lieu of a layoff; and fund state programs where workers take temporary jobs, volunteer work, or on-the-job training courses.
American Jobs Act would include $8 billion to fund tax credits up to $4,000 for employers who hire long-time unemployed workers; a separate “Returning Heroes” tax credit from $5,600 to $9,600 for hiring unemployed veterans, the cost of which was not available; and $5 billion for Obama to create a “Pathways to Work” fund to pay for training and jobs for “hundreds of thousands” of low-income youths and adults.
Other highlights of the proposal:
- $35 billion to prevent layoffs of up to 280,000 teachers and an unknown number of police officers and firefighters.
- $30 billion for repair and modernization projects for more than 35,000 schools including science and computer laboratories.
“I don’t pretend that this plan will solve all our problems. It should not be, nor will it be, the last plan of action we propose,” Obama said.
He also pleaded with members of the House of Representatives and Senate to look beyond Washington's partisan divide, likely to intensify with the 2012 election, in which all seats in the House and one-third of the seats in the Senate are at stake in addition to Obama's job. "The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy."
House Majority Leader Eric Cantor (R-VA) told CNBC some parts of the bill could find support from Republicans in his chamber. "We did hear some things, like small business tax relief, reducing red tape, working to try and streamline the infrastructure spending in this country, and looking to reform the unemployment benefits program to get people back to work. These are the kinds of things that can produce results, help clean up the system, and we could do these right away."