Well, I commented last night on President Obama’s speech to Congress on WGXC, my local radio station. I thought it worth putting down my thoughts on silicon, since I’ve already done all the thinking about it.
First of all, I thought that the delivery was one of the better that I’ve heard from President Obama since he took office. It reminded me more of candidate Obama. Maybe that’s because this speech, more than the official announcement that he was running for re-election a while back, was the kick-off to his re-election campaign. He had that whole preacher cadence down, punctuating sections of the speech with the phrase “that’s why you should pass this bill now.” A nice touch, but one that was clearly not directed at the politicians in front of him, many of whom wouldn’t support kibble for kittens if it was an Obama proposal.
Moving on to substance is a bit depressing. The American Jobs Act is equal parts weak tea and bitter pill. The weak tea is that as a job creation proposal it does too little, too ineffectively. Much of the proposal the President outlined in the speech sounds a lot like the American Recovery and Reinvestment Act, the stimulus passed early in 2009. I will talk about that bill’s effectiveness in a bit, because I think a lot of people think very lazily about how to assess that policy’s impact. But the parts are all there: lots of tax cutting; state aid; unemployment insurance; and infrastructure spending. There is also some mortgage finance relief thrown in for good measure.
Tax cuts will be welcome to most people, of course. Who doesn’t want more of their paycheck going directly into their pockets (other than Warren Buffet, of course)? The proposal to cut payroll taxes in half is great in a couple of ways. It will add some stimulus to the demand for goods and services (people will buy more stuff if they get their hands on a bigger chunk of their paychecks). And the payroll tax is one of the more regressive federal taxes, since people pay a flat rate on their first $100K or so of wage and salary income and nothing above that cap, which means that people who make less than $100K (most of us) put a bigger percentage of our salaries into the Social Security system than those who make more.
The employer reduction in the payroll tax isn’t going to be as helpful. Some small business owners will see that as a small bump to their bottom line, but it certainly isn’t going to create a lot of jobs. Nor will the tax credits for hiring the long-term unemployed or veterans, although those are certainly worthy targets for encouraging employment. But businesses aren’t making hiring decisions based on the tax implications of hiring more workers. Certainly, they take taxes they have to pay into account, but these are a small portion of the cost of hiring someone. The point is that businesses aren’t hiring people because there is not enough demand for goods and services in the economy. Until demand for the stuff businesses produce or provide goes up, hiring will remain slow.
State aid is a simpler case to make. continue reading…