President Obama’s new, robust, and ambitious jobs plan is a well-crafted measure that would provide significantly more job and earnings opportunities for working Americans. Given the economic difficulties facing America’s families, Congress should enact it sooner rather than later.
The President did not estimate how many jobs it would create or save but, at about $450 billion, it’s clearly large enough to cut the unemployment rate over the next year or so. Moody’s Analytics’ Mark Zandi predicts the plan would add 1.9 million jobs in 2012 and cut the jobless rate — which now stands at 9.1 percent — by a percentage point compared to where it would otherwise be.
In fact, as the chart reveals, if Congress fails to pass any of the measures in the American Jobs Act, we should expect the unemployment rate to be slightly higher next year (9.3 percent). But with the AJA job-creation measures at work in the economy, the jobless rate would be 8.3 percent. That’s still too high, but it’s a marked improvement.
As expected, the President called for renewing the payroll tax cut and extending unemployment insurance benefits, both of which are scheduled to expire at the end of this year. But he also called for considerable extensions of both policies.
On the payroll tax break, he proposed raising the 2 percentage-point cut to 3.1 percentage points (half of the overall payroll tax on employees). The benefits of the tax cut to a typical worker earning $50,000 per year would grow from $1,000 to $1,550.
Employers also pay a 6.2 percent payroll tax, and the President proposed cutting that in half to 3.1 percent, capped at $5 million of payroll. In other words, employers would benefit from tax relief of up to $155,000. Since large businesses have payrolls well over the $5 million cap, the structure of this tax cut favors small businesses.
Just as under the current payroll tax cut, the federal government would transfer general revenues to Social Security to reimburse it for the revenues lost through the payroll tax cut.
The President’s proposed extension of unemployment benefits includes a new $4,000 credit to employers who hire the long-term unemployed (those seeking work for at least six months).
On the infrastructure side, the President’s plan includes $50 billion for surface transportation projects, $30 billion for public school and community college repairs and renovations, and a $10 billion down payment for an infrastructure bank.
Also, given the serious loss of state and local jobs during the downturn, the plan wisely includes $35 billion to preserve jobs of teachers and “first responders” such as police and firefighters.
Other parts of the jobs plan include:
- a $15 billion neighborhood stabilization fund to help improve and repair low-income housing, including homes vacant due to foreclosure, that can then be sold to low-income homebuyers;
- a $5 billion “Pathway Back to Work Fund,” including summer jobs for low-income adults and youth, subsidized jobs for members of low-income families, and a training/work placement program.
- an on-the-job training program for unemployment recipients; and
- a small business expensing program that allows businesses to write off the cost of certain capital expenses (typically equipment and software) in one year as opposed to the usual many years.
The President proposed paying for the package through revenue increases and spending cuts. But to avoid canceling out the stimulative impact of the plan, these “pay-fors” would kick in down the road, when the economy is presumably stronger.
The jobs plan President Obama announced last night includes a promising proposal to help get the economy moving and build a stronger future: support for schools to retain and hire teachers and other employees.
Most states have cut elementary and high school funding to help close large budget gaps since the recession started, and widespread cuts are continuing this fiscal year, as our recent analysis detailed. A few states have cut support by more than 20 percent per pupil since before the recession, in inflation-adjusted terms.
Over the last three years, localities across the nation have eliminated 293,000 jobs — most of them in the past year (see graph). A large number of private-sector jobs have likely disappeared as well, as school districts cancel or scale back purchases of items such as textbooks.
These job losses are slowing the economy as a whole, since people without jobs buy less, and the ripple effect threatens other jobs as well.
Without the emergency federal aid the President proposes, even more jobs would disappear in the coming year, as state education funding cuts continue.
Saving those jobs and allowing schools to hire back some laid-off teachers and other workers makes sense on two levels. It would help the economy get moving now: Moody’s Analytics estimates that the aid to states would add 135,000 public- and private-sector jobs in 2012. And it would help build a stronger future: if this nation is going to continue competing successfully in the global economy, we can’t afford to have our teachers standing in the unemployment line.
With President Obama expected to call tonight for an extension of the payroll tax cut, the Tax Policy Center has issued new estimates of the average benefit in 2012 for households in different income groups. We issued a paper yesterday explaining why policymakers should extend the tax cut as part of a broader series of steps to help the economy.
Donna Pavetti testified today before the House Ways and Means Committee, Subcommittee on Human Resources, on renewing the Temporary Assistance for Needy Families (TANF) program. Here’s the opening of her testimony:
TANF was created 15 years ago with a balanced approach in mind — that our nation’s cash assistance system would be redesigned to create an expectation of work for able-bodied recipients and that a safety net would be maintained for parents who were unable to work due to a short-term crisis, a work-limiting disability or because no jobs are available. When we consider the reauthorization of TANF, we need to consider both aspects of TANF, taking into account what we have learned during TANF’s first 15 years.
In my testimony, I will focus on four key points related to these two aspects of TANF:
- TANF provides cash assistance for a very small share of poor families, and many who receive assistance face significant barriers to employment.
- State TANF programs are built on an expectation of work, but there is a mismatch between recipients’ employment assistance needs and the narrowly-defined work activities that the statute recognizes.
- The TANF work participation rate is an inadequate measure of TANF’s success or failure as a program that promotes and supports work and provides a safety net when work is not available.
- The safety net aspect of TANF is weak; TANF responded only modestly to increased need during the recent economic downturn, and then, only in some states.
First, however, I would like to highlight an immediate issue that merits policymakers’ attention even before reauthorization. Congress should restore and renew full funding for 2012 for TANF Supplemental Grants, which were provided to 17 states every year since 1996, until now. Despite its name, this funding was meant to address serious inequities across states in the basic TANF funding formula, rather than as a “supplement.” Recipient states have among the highest rates of overall poverty and child poverty, and on average, their TANF expenditures per poor child have been less than half those of non-recipient states.
States are now scaling back programs that help unemployed TANF recipients find jobs, and TANF has responded only modestly to the recession, largely due to its fixed block-grant funding structure that provides states the same funds regardless of increases in need as a result of an economic downturn. The unprecedented loss of TANF Supplemental Grant funds for the 17 states this past June 30, will, among other things, make it harder for them to maintain or increase work engagement among recipients.
Click here for the full testimony.