CHN: The President’s Job Creation Package

With unemployment continuing at more than 9 percent and 25 million either out of work or working too few hours, federal initiatives to create jobs are urgently needed.  On September 8, President Obama addressed a joint session of Congress to outline his proposals to add or save up to 2 million jobs.  A combination of tax cuts for businesses and individuals, continuation of federal Unemployment Insurance, and a variety of jobs measures, many of which are targeted to low-income communities, the $447 billion package faces an uphill battle in a divided Congress.
The American Jobs Act was pointedly compiled from proposals that have at one time or another garnered bipartisan support.  For example, $65 billion in the package will pay for cutting employer payroll taxes in half, limited to businesses with payrolls less than $5 million.  Another $5 billion would provide a temporary tax credit offsetting the full cost of employer payroll taxes for increased wages or new hires.  Such proposals have in the past attracted Republican and Democratic support, as has the proposal to continue and expand the payroll tax cut for employees.  Congress returned from its August recess chastened by loud cries for action on jobs in constituent meetings across the nation.  That expression of public will made it more difficult for partisans to offer an immediate categorical rejection of the President’s plan.  But once the Administration supplied the details of its proposal to pay for it through increased revenues from high-income individuals and profitable corporations, opposition started to surface.  House Speaker Boehner’s September 15 speech about jobs, in which he retreated to former intransigence in opposing any net revenue increases, signaled a tough road ahead.

The President is hoping that the concerns about jobs evident in town meetings over the summer continue through the fall, to push Congress to act.  For those concerned about joblessness in low-income communities, the long-term unemployed, saving education and public safety jobs, and modernizing our infrastructure, there are important provisions attracting support.

Help for the Long-Term Unemployed.  First, the American Jobs Act includes the continuation of federal Unemployment Insurance for those out of work six months or more through 2012 (at a cost of $49 billion).  The federal UI program is scheduled to expire at the end of this year if no action is taken.  With 6 million people out of work for six months or more, the consequences of failing to extend these benefits would be grave.  In addition to continuing the current number of weeks of federal UI, the President proposes a number of changes, some controversial.  The legislation would require states to provide reemployment services to long-term unemployed people receiving UI benefits, would allow states to create plans to provide UI to workers trying to start their own businesses, and would allow states to design “Bridge to Work” programs in which people receiving federal UI benefits could volunteer with private sector businesses in hopes of securing paying jobs.  While voluntary, concerns have been expressed that this proposal is a source of free labor to private businesses with no requirement that they hire the volunteers after their 8-week temporary stint is concluded.  Unlike the similar Georgia Works program, this version would require that compensation be no less than the minimum wage and that workers were covered by Fair Labor Standards Act provisions.

In other strategies aimed at reducing long-term unemployment, the bill allows states to develop voluntary wage insurance plans, in which UI funds could be used to supplement wages if the jobless find jobs at pay lower than they had previously received.

In addition, the legislation includes an $8 billion tax credit for businesses hiring the long-term unemployed (a $4,000 credit per worker) and a separate initiative to encourage hiring of veterans.  The bill also prohibits discrimination against the unemployed in hiring.

Included within its initiatives to broaden the use of unemployment compensation funds is a work-sharing proposal that would prevent joblessness by allowing federal unemployment funds to be used to make up lost wages if employers choose to cut back hours rather than eliminate positions.  Such programs are in operation in 20 states and have been used successfully in other countries.

Pathways Back to Work:  targeted low-income employment programs.    These $5 billion initiatives include summer and year-round jobs and/or training for low-income youth, and subsidized jobs and other forms of training or job preparation for low-income adults.  $2 billion of these funds would support subsidized temporary jobs, similar to the successful (but expired) TANF emergency fund program.  The youth employment programs would be funded at $1.5 billion; another $1.5 billion would support competitive grants to local entities for work-based training.

Education and Public Safety Jobs.  The bill includes $35 billion to hire teachers, police and firefighters.  The bulk of the funding ($30 billion) will support education jobs, including early childhood education.  The American Jobs Act also provides $30 billion to modernize at least 35,000 school buildings.

Infrastructure.  In addition to school renovations, the legislation calls for a $10 billion infrastructure bank and investments in transportation and wireless initiatives adding up to at least $60 billion.    The bill also would establish Project Rebuild ($15 billion) to renovate foreclosed and blighted residential and commercial properties in low-income communities, hiring workers from those communities.

Payroll Tax Cut for Employees.  The biggest single expense in the package ($179 billion) is extending and expanding the payroll tax cut for workers now in place.  If no action is taken, the current payroll tax reduction will expire at the end of 2012; workers would then see a tax increase starting in January of 2013, which would not be desirable when the economy is still in such trouble.  A household with earnings of $50,000 would get a $1,500 tax reduction under this plan (lowering the payroll tax paid from 6.2 percent to 3.1 percent).  The funding that would be lost to the Social Security Trust Fund will be replaced.

Paying for the Jobs Package.  The legislation includes revenue increases to offset the cost of the job creation provisions.  Most of the funding would come from limiting the value of tax deductions to 28 percent ($400 billion over 10 years).  This would affect couples with incomes over $250,000, or individuals with incomes of above $200,000; others with lower income would not see a change.  Smaller amounts would be raised from taxing carried interest as ordinary income, rather than as capital gains (this would close a loophole providing a break for hedge fund managers and some others), closing a loophole over depreciation of corporate jets, repealing oil and gas subsidies, and reducing tax breaks for taxpayers with offshore income.

Scenario for Enacting the Jobs Bill.  While it seems plausible that Congress might pass some or all of the tax cuts in the jobs bill, there would be clear opposition to the other provisions, even though many would be well-targeted to create jobs in low-income communities where they are desperately needed.  The strategy with a chance of holding the various parts of the package together would be to incorporate the jobs bill within the work of the Joint Select Committee on Deficit Reduction.  The American Jobs Act explicitly calls upon the Joint Committee to add revenue raisers such as the bill proposes to the deficit reduction total, in order to pay for the job creation measures.  It would be appropriate for the “super committee” to include job creation in its plan to reduce the deficit, since millions more workers would be paying taxes and generating more economic activity.  If the super committee can agree on a deficit reduction plan, it would proceed to votes in Congress on a fast track with no possibility of amendment or filibuster.  With 6 Republicans and 6 Democrats on the committee, it is not at all clear that a jobs package resembling the American Jobs Act could be included; but including it as part of the price of the overall deal is one of the only strategies with any chance of creating jobs in the next few months.

Budget and Appropriations
family and medical leave
Home Energy Assistance
Labor and Employment
Policy Analyses and Research
unemployment insurance