Dr. Obama prescribes another big dose of stimulus
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By James Pethokoukis
WASHINGTON (Reuters Breakingviews) – U.S. President Barack Obama’s $447 billion jobs plan should please everyone from Federal Reserve Chairman Ben Bernanke to the International Monetary Fund’s boss Christine Lagarde. Both policymakers have suggested America put stimulus ahead of austerity. Congressional Republicans may be less thrilled. But the tax cuts may pass Congress. Expect Wall Street to start boosting 2012 U.S. growth forecasts.
All summer, bank economists have been slashing their GDP estimates for next year. Yet at the same time many have continued to assume that more than $100 billion in temporary payroll tax cuts for workers would be extended through 2012. The new White House proposal raises that total to $175 billion and also tacks on a $65 billion payroll tax reduction for employers. Those two elements make up the bulk of Obama’s “American Jobs Act” and are the bits mostly likely to earn GOP support on Capitol Hill.
The president’s models calculate the whole package could boost growth by two percentage points. Some $200 billion in infrastructure spending and unemployment benefits will be a tougher sell. Republicans may well substitute their own stimulus ideas for those items so that the package ends up composed entirely of tax cuts.
The most likely addition is a temporary reduction in the taxes on foreign earnings repatriated by multinational corporations. The U.S. Chamber of Commerce estimates such a tax holiday could boost growth by a full percentage point next year. White House economists criticize the idea as providing too little bang for the buck, but it could be the price for getting a deal. Either way, an agreement can get done.
Then it will up to the new debt reduction “supercommittee” in Congress to figure out a way of paying for a year of stimulus over the next decade. The panel was already going to have a tough time finding $1.2 trillion in deficit cuts, its current mandate. Obama would increase the bipartisan group’s burden by more than a third.
But with borrowing costs for Uncle Sam incredibly low, markets seem unconcerned about federal debt levels. And with re-election perhaps riding on getting the plan passed, Obama probably isn’t too worried either.
— U.S. President Barack Obama challenged Congress on Sept. 8 to enact a $447 billion package of tax cuts and new spending to revive a stalled job market. But he faces an uphill fight with Congressional Republicans on any new spending.
— Obama, who pushed through an $800 billion economic stimulus package in 2009, said his new plan would cut taxes for workers and businesses and put more construction workers and teachers on the job through infrastructure projects.
— As fears rise of another recession and more global economic gloom, G7 finance ministers meeting in France on Friday are set to encourage countries that can afford it to do more for growth.
— Obama said his proposed plan would “provide a jolt to an economy that has stalled and give companies confidence that if they invest and hire there will be customers.”
— He proposed extending unemployment insurance at a cost of $49 billion, modernizing schools for $30 billion and investing in transportation infrastructure projects for $50 billion.
— But the bulk of his proposal was made up of $240 billion in tax relief by cutting payroll taxes for employees in half next year and trimming employer payroll taxes as well.
— Obama also said he was seeking to broaden U.S. homeowners’ access to mortgage refinancing to help the ailing housing market — a proposal that drew rare applause from Republicans during the speech.
(Editing by Rob Cox and David Evans)