Will Obama’s Jobs plan really work?

Obama's proposal

President Obama has recently been touring around the country, sounding out his new jobs plan to Americans. But many new questions have been raised on whether this would really be effective or just a waste of time and a drain of resources. The overall tone of Americans towards the US government has generally been of disappointment and distrust. Some say its easy to lose faith in times of hardship, and that this is just a temporary cycle. But the US government didn’t really help its case with the bruising debt ceiling battle, something which drove American approval of Congress to record lows. As a result, many people are right to be skeptical of the new jobs plan, officially called the American Jobs Act. Is this really a way out of the crises or just more Washington politics?

There is probably a mixed answer to the political aspect of this question, but a more clear one on the economics side. The cost of this plan is pegged at roughly $447 billion dollars. That is certainly a lot of money, considering the times we are in and the debt situation we are facing. But lets take a deeper look at the bill, close to $253 billion dollars of the total amount are basically just tax cuts on businesses and employee salaries. Of the $253 billion, about $78 billion will go towards providing tax credits to businesses for hiring workers and making investments. While $175 billion will go towards eliminating payroll taxes by half for workers. The $194 billion not going towards tax cuts, will go towards modernizing schools, keeping government workers on the job, improving infrastructure, and extending unemployment benefits. So in effect this bill is an even combination of tax cuts and stimulus spending. So will this really help the economy?

Many economists from Paul Krugman to Mohamed El-Erian of PIMCO agree, that this is a strong plan that will certainly make a dent in unemployment. But other economists disagree or have mixed reservations about how this will really change things. For example, economist Nouriel Roubini questioned on whether this would really solve the household debt crises, and even famed investor Warren Buffet had reservations about the plan. My guess is that while even though it won’t really solve household debt, which I think is the main concern for American families right now, to the average American family, any kind of help would be greatly appreciated. So the overall economic effects of a bill like this seems likely to be positive, I mean just look at the math. This bill significantly slashes payroll taxes, which would mean that American workers would be taking home more money. Which means more money to pay off debt and maybe even spend. So if this bill were to pass, the worst case scenario would be that even if households don’t spend more, they would have at least paid off more debt and saved up more money. Which would result in greater consumer confidence and higher consumption down the line.

This bill was specifically made to gain bipartisan Congressional approval. It contains tax cuts for workers AND businesses. To top it off, the Obama administration also included a clause in the bill on how it would be completely paid for through spending cuts and tax increases, to satisfy the fiscal conservatives. Even Mark Zandi, Chief Economist at Moody’s Analytics and former adviser to Republican presidential candidate John McCain agrees that “There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans.” But with the Republicans in Washington determined to see Obama fail and election season coming up, it seems highly unlikely this bill will ever reach the American public in time or without getting watered down by partisan politics.

-Jay Zadey

Zeke Miller. “FACTSHEET: Obama’s Jobs Plan”. Business Insider. Retrieved Sept.30,2011

Paul Weissman. “Many economists say Obama jobs plan will help”. Associated Press. Retrieved Sept.30,2011 from USA Today(http://www.usatoday.com/money/economy/story/2011-09-09/obama-jobs-plan-economists/50336434/1)

Tim Mak.“Warren Buffett not completely on board with jobs plan”. Politico. Retrieved Sept.30,2011 (http://www.politico.com/news/stories/0911/64817.html#ixzz1ZU47fgrU)


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