President Barack Obama plans to
propose sparking job growth by injecting more than $300 billion
into the economy next year, mostly through tax cuts,
infrastructure spending and direct aid to state and local
governments.
Obama will call on Congress to offset the cost of the
short-term jobs measures by raising tax revenue in later years.
This would be part of a long-term deficit reduction package,
including spending and entitlement cuts as well as revenue
increases, that he will present next week to the congressional
panel charged with finding ways to reduce the nation’s debt.
Almost half the stimulus would come from tax cuts, which
include an extension of a two-percentage-point reduction in the
payroll tax paid by workers due to expire Dec. 31 and a new
decrease in the portion of the tax paid by employers.
Obama is set to lay out his plans in an address to Congress
tomorrow as unemployment remains at 9.1 percent more than two
years after the official end of the worst recession since the
Great Depression. Payroll growth stalled last month.
The unemployment rate and the sluggish recovery will be
central issues as Obama runs for re-election next year. Former
Massachusetts Governor Mitt Romney, a leading Republican seeking
the party’s nomination to face Obama in November 2012, yesterday
offered his own 59-point economic plan, including tax cuts for
those making $200,000 or less a year.
Plan Previewed
The main components of Obama’s jobs plan, though not its
scale, have been largely telegraphed by the administration. For
weeks, people familiar with deliberations have said the White
House is considering tax incentives, infrastructure and
assistance to local governments. Obama has stressed construction
and tax cuts in recent public speeches
Obama has pressed Congress throughout the year to renew the
payroll tax holiday along with extended unemployment benefits,
which also expire Dec. 31. Backing for a reduction in the
employer contribution to the payroll tax has been under
consideration since at least June.
Obama’s jobs plan follows the contours of his $830 billion
2009 economic stimulus package, which also stressed tax cuts,
infrastructure spending and assistance to local governments.
Still, tax cuts would account for a larger portion of the
proposal he will lay out this week.
White House press secretary Jay Carney refused to give
details of what the president will offer, saying at a briefing
yesterday that it would include “some new proposals that you
have not heard us talk about.”
Resistance in House
Much of Obama’s plan may have trouble passing the U.S.
House, where leaders of the Republican majority have signaled
opposition to new spending that would add to the federal budget
deficit. House Speaker John Boehner of Ohio and Majority Leader
Eric Cantor of Virginia released a letter to Obama yesterday
saying their objections to the 2009 stimulus, which they called
a “large, deficit-financed, government spending bill,” have
been validated by continued high unemployment.
Obama said in a Sept. 5 speech in Detroit that he would
challenge Republicans to support tax cuts, which a person
familiar with administration discussions said would be targeted
toward middle-class Americans to spur consumer spending.
“You say you’re the party of tax cuts?” Obama said before
the annual Metro Detroit Central Labor Council rally. “Well
then, prove you’ll fight just as hard for tax cuts for middle-
class families as you do for oil companies and the most affluent
Americans.”
Aid to States
The direct aid to local governments would focus on halting
layoffs of teachers and first responders. Education will be a
theme in Obama’s address, and he will also propose as part of
his infrastructure program money for school construction. Some
of the infrastructure spending would go toward roads, bridges
and other surface transportation projects.
White House officials say they anticipate congressional
Republicans may go along with some of the tax cuts Obama is
seeking, including the extension of the payroll tax cut. Still,
they expect to meet Republican resistance to much of the
package.
To address the problem of long-term unemployment, Obama
will likely propose a national program, modeled after a Georgia
initiative that allows workers who receive unemployment
insurance to train for jobs at businesses at no cost to the
employer. Obama, at a town-hall meeting in Atkinson, Illinois,
last month, called the Georgia Works initiative a “a smart
program.”
Obama also plans to propose measures to make it easier for
homeowners to refinance mortgages.
Deficit Reduction
Obama will unveil a framework for the deficit reductions
next week, including changes to Medicare and Medicaid, in
addition to other cuts in contributions to military pensions and
farm subsidies.
After a partisan fight over the deficit and raising the
government’s debt limit took the country to the brink of
default, Standard & Poor’s lowered the U.S.’s credit rating to
AA+ from AAA on Aug. 5. The rating firm said the government is
becoming “less stable, less effective and less predictable.”
Even so, the government’s borrowing costs fell to record lows as
Treasuries rallied. The yield on the benchmark 10-year Treasury
note fell from 2.56 percent on Aug. 5 to 1.97 percent yesterday.
Moody’s Investors Service and Fitch Ratings affirmed their
top rankings on the U.S.
Slow Growth
Concern over the economy has increased as growth weakened
during the first half of the year to its slowest pace of the
recovery and market pessimism has risen over the ramifications
of the European debt crisis.
The Standard & Poor’s 500 Index fell 0.7 percent yesterday
in New York. The Stoxx Europe 600 Index slipped 0.7 percent to
the lowest level since July 2009.
Recent signs of economic weakness have led private
economists to raise forecasts for the unemployment rate next
year. The median forecast for unemployment during next year’s
fourth quarter, when the presidential election will be held, is
8.5 percent, according to 51 economists surveyed by Bloomberg
News Aug. 2 through Aug. 10.
Since World War II, no U.S. president has won re-election
with a jobless rate above 6 percent, with the exception of
Ronald Reagan, who faced 7.2 percent unemployment on Election
Day in 1984. The jobless rate under Reagan had come down more
than 3 percentage points during the prior two years.
To contact the reporter on this story:
Albert Hunt in Washington at
ahunt1@bloomberg.net
To contact the editor responsible for this story:
Mark Silva at msilva34@bloomberg.net.
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