American Jobs, Hopefully
Obama’s Jobs Act has substance; Congress must compromise for the sake of American workers.
The surprisingly ambitious American Jobs Act shows that President Obama has learned a hard lesson in bargaining: start out asking for more than you think you’ll receive. The most probable compromise won’t do as much as is necessary, but it will help some businesses and workers unite to create new jobs.
The $450 billion first draft of the American Jobs Act includes tax cuts, spending, and aid to the unemployed. The tax cuts would temporarily halve the payroll tax for workers and many small businesses at a cost of $235 billion. The spending initiatives are geared towards upgrading roads and schools as well as bailing out cash-strapped local school systems, which are shedding teachers. The unemployment aid would expand jobless benefits and give tax credits to businesses that hire the long-term unemployed.
The spending and jobless aid, however, are irrelevant. Federal funding for new schools stands the same chance of passing the Republican-controlled House of Representatives as federal funding for gay wedding receptions.
Consider the recent fate of free trade pacts with South Korea, Colombia, and Panama that have been stalled in the US Senate since February. President Obama, despite union hostility towards free trade, insisted from the start that he will support the agreements, if Congress extends a relatively minor program that helps workers displaced by trade. Senate Republicans immediately balked at the ten-year price tag of $2.1 billion, and managed to stall until Democrats agreed to shave off $1 billion.
The delay illustrates well the depth of Republican contempt for spending beyond Tomahawk missiles. Free trade agreements are immensely popular with Republicans’ business allies, but the party stalled for eight months on these historic agreements over $1 billion in federal spending.
The tax cuts in the American Jobs Act, on the other hand, should pass after some wrangling. Eric Cantor, the elected leader of House Republicans, has criticized Obama for taking an “all-or-nothing approach,” which means a “something approach” might be acceptable. The most likely outcome is that Obama will fight hard for two months to pass the entire Jobs Act, reminding teachers and dissatisfied liberals which side is which. Then he will cave to unflinching Republican intransigence and just pass his payroll tax cuts, reminding independent voters that he is a compromiser.
Fortunately, the payroll tax cuts are a good idea. President Obama was wise to ensure that only component of the Jobs Act that will survive is also the largest component.
The cut in the employers’ payroll tax can foster hiring, as employers effectively face lower wage costs. If a business is considering a big data entry project, for example, then the temporary payroll tax cut makes it attractive to get the work done sooner rather than later. Lower wage costs might also allow lower prices.
The cut in the employees’ payroll tax can nudge job-seekers to settle. Recent surveys by Princeton economists Krueger and Mueller found “the reservation wage over the course of unemployment is remarkably stable for most workers,” meaning most unemployed Americans are holding out for a certain wage. If unemployed workers realise that their take-home pay at a given wage is effectively higher because of the tax cut, then they should be willing to accept lower wage jobs for a while.
The trouble is that most workers are slow to learn how a tax change affects take-home pay, and small businesses might lack the sophistication to calculate whether adding workers at lower cost is worthwhile.
Ideally, President Obama could amplify the effects of the tax cuts with a suicidally honest information campaign. He could tell American businesses that US workers are “going on sale, for a limited time only!” He could tell the unemployed “now you can finally afford to work wages you’ve never dreamed were acceptable!” But even without such a losing message from Obama, the tax cuts will probably induce some supply-side effects and certainly raise demand as households earn higher incomes.
Unfortunately, Republicans may be so committed to precluding Obama’s reelection that they will reject any rational compromise. A senior Republican aide was recently quoted saying, “Obama is on the ropes; why do we appear ready to hand him a win?” There is also the classic 2010 quote from Senate Minority Leader Mitch McConnell: “The single most important thing we want to achieve is for President Obama to be a one-term president.”
An American myself, I only hope Republicans care enough about everyday Americans’ jobs to exercise restraint in the fight for Obama’s.
American Jobs, Hopefully
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Tags: democrats, jobs act, obama, republicans
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Obama’s Jobs Act has substance; Congress must compromise for the sake of American workers.
The surprisingly ambitious American Jobs Act shows that President Obama has learned a hard lesson in bargaining: start out asking for more than you think you’ll receive. The most probable compromise won’t do as much as is necessary, but it will help some businesses and workers unite to create new jobs.
The $450 billion first draft of the American Jobs Act includes tax cuts, spending, and aid to the unemployed. The tax cuts would temporarily halve the payroll tax for workers and many small businesses at a cost of $235 billion. The spending initiatives are geared towards upgrading roads and schools as well as bailing out cash-strapped local school systems, which are shedding teachers. The unemployment aid would expand jobless benefits and give tax credits to businesses that hire the long-term unemployed.
The spending and jobless aid, however, are irrelevant. Federal funding for new schools stands the same chance of passing the Republican-controlled House of Representatives as federal funding for gay wedding receptions.
Consider the recent fate of free trade pacts with South Korea, Colombia, and Panama that have been stalled in the US Senate since February. President Obama, despite union hostility towards free trade, insisted from the start that he will support the agreements, if Congress extends a relatively minor program that helps workers displaced by trade. Senate Republicans immediately balked at the ten-year price tag of $2.1 billion, and managed to stall until Democrats agreed to shave off $1 billion.
The delay illustrates well the depth of Republican contempt for spending beyond Tomahawk missiles. Free trade agreements are immensely popular with Republicans’ business allies, but the party stalled for eight months on these historic agreements over $1 billion in federal spending.
The tax cuts in the American Jobs Act, on the other hand, should pass after some wrangling. Eric Cantor, the elected leader of House Republicans, has criticized Obama for taking an “all-or-nothing approach,” which means a “something approach” might be acceptable. The most likely outcome is that Obama will fight hard for two months to pass the entire Jobs Act, reminding teachers and dissatisfied liberals which side is which. Then he will cave to unflinching Republican intransigence and just pass his payroll tax cuts, reminding independent voters that he is a compromiser.
Fortunately, the payroll tax cuts are a good idea. President Obama was wise to ensure that only component of the Jobs Act that will survive is also the largest component.
The cut in the employers’ payroll tax can foster hiring, as employers effectively face lower wage costs. If a business is considering a big data entry project, for example, then the temporary payroll tax cut makes it attractive to get the work done sooner rather than later. Lower wage costs might also allow lower prices.
The cut in the employees’ payroll tax can nudge job-seekers to settle. Recent surveys by Princeton economists Krueger and Mueller found “the reservation wage over the course of unemployment is remarkably stable for most workers,” meaning most unemployed Americans are holding out for a certain wage. If unemployed workers realise that their take-home pay at a given wage is effectively higher because of the tax cut, then they should be willing to accept lower wage jobs for a while.
The trouble is that most workers are slow to learn how a tax change affects take-home pay, and small businesses might lack the sophistication to calculate whether adding workers at lower cost is worthwhile.
Ideally, President Obama could amplify the effects of the tax cuts with a suicidally honest information campaign. He could tell American businesses that US workers are “going on sale, for a limited time only!” He could tell the unemployed “now you can finally afford to work wages you’ve never dreamed were acceptable!” But even without such a losing message from Obama, the tax cuts will probably induce some supply-side effects and certainly raise demand as households earn higher incomes.
Unfortunately, Republicans may be so committed to precluding Obama’s reelection that they will reject any rational compromise. A senior Republican aide was recently quoted saying, “Obama is on the ropes; why do we appear ready to hand him a win?” There is also the classic 2010 quote from Senate Minority Leader Mitch McConnell: “The single most important thing we want to achieve is for President Obama to be a one-term president.”
An American myself, I only hope Republicans care enough about everyday Americans’ jobs to exercise restraint in the fight for Obama’s.
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