WASHINGTON (AP) — Hamstrung by budget cuts and a tight
debt ceiling, President Barack Obama is preparing a September jobs package with
limited tools at his disposal to prime the economy and crank up employment.
At a minimum, the president's plan will call on
Congress to extend current payroll tax cuts and jobless benefits, spend money
for new construction projects and offer incentives to businesses to hire more
workers. But economists say that while that would eliminate some drag on the
economy and maintain the status quo, it won't be enough to propel it to new
heights.
The president's plan, which he will announce in a
major speech next week, will be far less ambitious than the $825 billion
stimulus of 2009, passed when the economy was still shrinking and when
unemployment stood at 8.2 percent. Now the economy is growing sluggishly but
unemployment is nearly a full percentage point higher — 9.1 percent for July.
Economists who advocate for government intervention
in the economy estimate that it would take a package of at least $300 billion
to avoid backsliding and even more to give the economy a lift.
That's a tall order for a president facing a
divided Congress where Republicans, demanding fiscal austerity, reject the
notion that short-term infusions of taxpayer money into the economy can prod a
sluggish recovery. Even without Republican opposition, such a level of spending
would require short-term borrowing that would move the government closer to its
new debt ceiling before the November 2012 election, something Obama is
determined to avoid.
The president's speech will set the stage for the
economic debate to come in Congress. A congressional supercommittee has been
given the job of finding at least $1.5 trillion in deficit reduction. As part
of his economic plan, Obama plans to propose even more deficit reduction to
help pay for the up-front cost of his jobs initiatives.
The listless economy, which has left millions of
Americans out of work and threatens the savings of millions more, is the
biggest obstacle facing Obama's re-election. Making the case for his economic
programs will be central to the remaining 18 months of his term.
"Our great challenge as a nation remains how
to get this economy growing faster," Obama said Monday. "That's our
urgent mission."
The president is certain to call for extending a
one-year payroll tax cut for workers and unemployment benefits that expire in
January, at a combined cost of about $175 billion. He also has lent support to
a proposal to create an "infrastructure bank," a fund that would be
seeded by the government but fed by private investment to pay for major road,
bridge and other public construction. Even advocates of the plan, however, say
that proposal probably would not be in place to generate jobs for about two
years.
Among other measures under consideration, but not
yet decided:
— A major school construction initiative of up to
$50 billion. Its advocates include Vice President Joe Biden's former chief
economic adviser, Jared Bernstein, who monitored progress of the 2009 stimulus.
Bernstein said school construction and renovation would be far more
labor-intensive than some of the public projects paid for by the stimulus.
"We kind of thought during the recovery act that we would see 50 hardhats
and 10 machines, and it ended up being the other way around at some of these
sites," he said.
— A payroll tax cut for employers, in addition to
the one for workers. Persons familiar with the White House discussions say top
aides prefer to target such cuts to employers who expand their payrolls, thus
serving as an incentive to hire.
—Encouraging corporations to bring into the United
States some of their foreign sources of income at preferential tax rates in
exchange for job creation measures.
—Tying unemployment insurance payments to
on-the-job training. Obama has applauded a program under way in Georgia in
which jobless benefits go to employers who hire the unemployed as trainees.
Mark Zandi, the chief economist at Moody's
Analytics who has advised Republicans and Democrats, said that without
government action, the private sector would have to grow by more than 4 percent
to generate enough jobs to keep unemployment from rising.
"That seems like a heavy lift at this
juncture," he said.
Bernstein said that if Congress fails to renew the
payroll tax cut and unemployment benefits, the jobless rate would probably
remain unchanged by the end of next year.
"If they renew them, we have a better chance
of a jobless rate that's 8.5 or below, which isn't great either, but is a whole
lot better than 9," he said.
Obama's plan is likely to be found lacking on both
ends of the political spectrum.
Republicans say Obama should focus on cutting taxes
for corporations and reducing regulatory burdens, steps they say will free the
private sector to spend and hire. Several have said they would oppose extending
the one-year payroll tax cut enacted in December, even if that would be the
equivalent of a tax increase on workers.
Conservative economist Kevin Hassett, whose
thinking often influences Republicans, argues that short-term government spending
to spur the economy can backfire in a slow recovery because the dose of
stimulus can run out before a recovery takes hold. That creates an economic
drag that can push the economy back into recession or forces yet more spending
that drives up government debt.
Hassett says a better way is to reduce the costs of
long-term benefit programs like Medicare and Social Security and use some of
the savings to enact a permanent tax cut for corporations, thus spurring higher
earnings.
Some liberal economists say Obama is hardly
spending enough to make a difference.
"I don't think their rhetoric matches their
actual budget policy," said Lawrence Mishel, president of the liberal
Economic Policy Institute.
Mishel said the agreement struck at the beginning
of August to increase the debt ceiling by $2.4 trillion in exchange for budget
cuts limited the president's options.
"The debt deal doesn't allow any sizable
amount of deficit spending or increased spending," he said. "If you
're going to pay for it later, how do you do that when you have a tight amount
of debt that you can take on over the next year and a half?"
Copyright
2011 The Associated Press.
(AP
Photo/Carolyn Kaster)
