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PRESIDENT BARACK OBAMA has unveiled the American Jobs Act, calling it “a comprehensive plan to put America back to work.” The plan includes tax benefits to encourage hiring and help small businesses grow, investments into education and infrastructure, reforms to the unemployment insurance programme and help for those who need to refinance their mortgages. Among the budgeted initiatives: US$175 billion ($213 billion) to extend and expand the employee payroll tax holiday, US$85 billion to aid state and local governments, US$65 billion to reduce employer payroll taxes on the first US$5 million paid in wages, and US$50 billion to build and repair roads, railways, airports and waterways.
The initial reaction has been one of scepticism. “President Obama’s US$447bn proposed stimulus plan makes sense in that it will offset the 1 to 2% of GDP fiscal drag that was otherwise going to occur next year and postpone it till 2013 when the economy hopefully might be stronger,” says Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors. “However, its economic impact may turn out to be much less than hoped and big parts of it are unlikely to pass through the Republican-controlled lower house in Congress.”
The biggest point of contention will probably be how the president intends to pay for this plan. Obama has said he intends for the plan to be funded through a long-term deficit reduction plan over 10 years, details of which will be released in the coming days. And he has called on lawmakers to put aside their political differences and pass his bill as the unemployment situation in the US continues to worsen. Politicians are deeply divided as Democrats urge more spending and Republicans argue against the big government they believe is destroying jobs.
US jobless claims for the most recent week rose to 414,000 from the previous week’s 412,000. And the August employment report showed that no net jobs were created last month. Private firms created 17,000 jobs while governments cut their payrolls by the same amount. Goldman Sachs says the weakness has been due to a drop-off in hiring rather than increased layoffs. “The economy seems to have slowed enough -- or uncertainty increased enough -- to discourage hiring, but not enough to prompt large layoffs from the still-lean corporate sector,” the brokerage says in a report.
