President Barack Obama plans to propose sparking job growth by injecting more than $300 billion into the economy next year, mostly through tax cuts, infrastructure spending and direct aid to state and local governments.
Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation’s debt.
Almost half the stimulus would come from tax cuts, which include an extension of a two-percentage-point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers.
Obama is set to lay out his plans in an address to Congress tomorrow as unemployment remains at 9.1 percent more than two years after the official end of the worst recession since the Great Depression. Payroll growth stalled last month.
The unemployment rate and the sluggish recovery will be central issues as Obama runs for re-election next year. Former Massachusetts Governor Mitt Romney, a leading Republican seeking the party’s nomination to face Obama in November 2012, yesterday offered his own 59-point economic plan, including tax cuts for those making $200,000 or less a year.
The main components of Obama’s jobs plan, though not its scale, have been largely telegraphed by the administration. For weeks, people familiar with deliberations have said the White House is considering tax incentives, infrastructure and assistance to local governments. Obama has stressed construction and tax cuts in recent public speeches
Obama has pressed Congress throughout the year to renew the payroll tax holiday along with extended unemployment benefits, which also expire Dec. 31. Backing for a reduction in the employer contribution to the payroll tax has been under consideration since at least June.
Obama’s jobs plan follows the contours of his $830 billion 2009 economic stimulus package, which also stressed tax cuts, infrastructure spending and assistance to local governments. Still, tax cuts would account for a larger portion of the proposal he will lay out this week.
White House press secretary Jay Carney refused to give details of what the president will offer, saying at a briefing yesterday that it would include “some new proposals that you have not heard us talk about.”
Resistance in House
Much of Obama’s plan may have trouble passing the U.S. House, where leaders of the Republican majority have signaled opposition to new spending that would add to the federal budget deficit. House Speaker John Boehner of Ohio and Majority Leader Eric Cantor of Virginia released a letter to Obama yesterday saying their objections to the 2009 stimulus, which they called a “large, deficit-financed, government spending bill,” have been validated by continued high unemployment.
Obama said in a Sept. 5 speech in Detroit that he would challenge Republicans to support tax cuts, which a person familiar with administration discussions said would be targeted toward middle-class Americans to spur consumer spending.
“You say you’re the party of tax cuts?” Obama said before the annual Metro Detroit Central Labor Council rally. “Well then, prove you’ll fight just as hard for tax cuts for middle-class families as you do for oil companies and the most affluent Americans.”
Aid to States
The direct aid to local governments would focus on halting layoffs of teachers and first responders. Education will be a theme in Obama’s address, and he will also propose as part of his infrastructure program money for school construction. Some of the infrastructure spending would go toward roads, bridges and other surface transportation projects.
White House officials say they anticipate congressional Republicans may go along with some of the tax cuts Obama is seeking, including the extension of the payroll tax cut. Still, they expect to meet Republican resistance to much of the package.
To address the problem of long-term unemployment, Obama will likely propose a national program, modeled after a Georgia initiative that allows workers who receive unemployment insurance to train for jobs at businesses at no cost to the employer. Obama, at a town-hall meeting in Atkinson, Illinois, last month, called the Georgia Works initiative a “a smart program.”
Obama also plans to propose measures to make it easier for homeowners to refinance mortgages.
Obama will unveil a framework for the deficit reductions next week, including changes to Medicare and Medicaid, in addition to other cuts in contributions to military pensions and farm subsidies.
After a partisan fight over the deficit and raising the government’s debt limit took the country to the brink of default, Standard & Poor’s lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. The rating firm said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to 1.97 percent yesterday.
Moody’s Investors Service and Fitch Ratings affirmed their top rankings on the U.S.
Concern over the economy has increased as growth weakened during the first half of the year to its slowest pace of the recovery and market pessimism has risen over the ramifications of the European debt crisis.
The Standard & Poor’s 500 Index fell 0.7 percent yesterday in New York. The Stoxx Europe 600 Index slipped 0.7 percent to the lowest level since July 2009.
Recent signs of economic weakness have led private economists to raise forecasts for the unemployment rate next year. The median forecast for unemployment during next year’s fourth quarter, when the presidential election will be held, is 8.5 percent, according to 51 economists surveyed by Bloomberg News Aug. 2 through Aug. 10.
Since World War II, no U.S. president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984. The jobless rate under Reagan had come down more than 3 percentage points during the prior two years.