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Debate: American Jobs Act

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Background and context

The American Jobs Act was written by the Obama Administration and unveiled in a high-profile speech by the President before a joint session of Congress on September 8th, 2011. The Act includes $447 billion over ten years to pay for temporary stimulus spending, new job training programs, unemployment insurance, and temporary tax reductions.
In order to offset the cost of the legislation, the bill includes an estimated $467 billion in tax increases and spending cuts to take place on a more long-term schedule once the economy has recovered. The bill includes a payroll tax cut for employees and employers. And, it offers a tax credit to businesses that hire individuals who have been unemployed for more than six months. It also focuses spending on "shovel-ready" infrastructure projects like roads, railways, waterways, ports, and airports to "modernize" America. Here is a link to the proposal from the White House. The legislation includes more tax cuts and tax credits than it does stimulus spending (a ratio of approximately 60-40[1]). According to estimates from several of the country’s best-known forecasting firms, the jobs package of tax cuts and spending initiatives could add 100,000 to 150,000 jobs a month over the next year. Others argue that adding to the deficit and modestly raising taxes on the wealthiest Americans and biggest corporations will hurt job creation. The pros and cons are outlined below.
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Stimulus: Will the American Jobs Act help stimulate the economy?

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Pro

  • Jobs Act could create over 100,000 jobs per month. Jacki Calmes and Binyamin Applebaum. "Bigger Economic Role for Washington." New York Times. September 13th, 2011: "The jobs package of tax cuts and spending initiatives could add 100,000 to 150,000 jobs a month over the next year, according to estimates from several of the country’s best-known forecasting firms; the potential Fed actions could add 15,000 more jobs a month over two years.[...] the firm projected that the plan would add roughly 1.25 percentage points to gross domestic product and create 1.3 million jobs in 2012. JPMorgan Chase estimated that the plan would increase growth by 1.9 points and add 1.5 million jobs. Most bullish is Moody’s Analytics, which forecast that the package would add 1.9 million jobs, cutting the unemployment rate by a point, and increase growth by two percentage points."
  • Jobs Act creates 2m jobs for unemployed construction workers. Building new bridges, roads, railroads, waterways, and ports will put up to 2m unemployed construction workers back to work, according to the White House.[2]
  • AJA reduces taxes, allowing small businesses to grow/hire. Fact Sheet for the American Jobs Act. White House: "1. Tax Cuts to Help America’s Small Businesses Hire and Grow. Cutting the payroll tax in half for 98 percent of businesses: The President’s plan will cut in half the taxes paid by businesses on their first $5 million in payroll, targeting the benefit to the 98 percent of firms that have payroll below this threshold. A complete payroll tax holiday for added workers or increased wages: The President’s plan will completely eliminate payroll taxes for firms that increase their payroll by adding new workers or increasing the wages of their current worker (the benefit is capped at the first $50 million in payroll increases). Extending 100% expensing into 2012: This continues an effective incentive for new investment. Reforms and regulatory reductions to help entrepreneurs and small businesses access capital."
  • Job Act creates opps for the long-term unemployed Fact Sheet for the American Jobs Act. White House: "3. Pathways Back to Work for Americans Looking for Jobs. The most innovative reform to the unemployment insurance program in 40 years: As part of an extension of unemployment insurance to prevent 5 million Americans looking for work from losing their benefits, the President’s plan includes innovative work-based reforms to prevent layoffs and give states greater flexibility to use UI funds to best support job-seekers, including: Work-Sharing: UI for workers whose employers choose work-sharing over layoffs. A new “Bridge to Work” program: The plan builds on and improves innovative state programs where those displacedtake temporary, voluntary work or pursue on-the-job training." [see more of quote on argument page.]
  • Jobs Act would benefit cities like NYC Patrick McGeehan. "Obama Jobs Plan Would Boost the City, Comptroller Says." New York Times City Room. September 9th, 2011: "The president’s jobs plan, which he announced on Thursday night, called for reducing the Social Security tax on income to 3.1 percent in 2012. The rate is currently set at 6.2 percent on the first $106,800 of an employee’s pay. Because workers in New York are relatively highly paid, the effect of that cut would be greater in the city than in other parts of the country. It would save $775 for a worker earning $25,000 a year and $3,100 for one who makes $100,000. All told, the comptroller’s office estimated, the gain to New Yorkers would amount to $4.8 billion, and the spending of a portion of that total would preserve or create about 25,000 jobs in the city." [read extended argument on article].
  • Jobs Act makes business investments tax deductible. If a businesses invests money, they can claim tax deductions on those investments.
  • Jobs Act help put unemployed veterans back to work. The Jobs Act gives a tax credit to businesses that hire unemployed veterans. As the president said, "after fighting abroad for America, the last thing veterans should have to do is fight for jobs at home."
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Con

  • American Jobs Act is too little to jump-start economy. Jack Rasmus. "Obama's 'Jobs Act' Proposal: Why Less Is More of the Same." Truthout. September 14th, 2011: "on the matter of the magnitude of spending in the proposal, some think it was bold. But put it in context; $447 billion just won't achieve the job creation it claims. It's once again too little for an economy the size of the US, for an economy in as deep an economic hole as it is and in an economy facing growing downward momentum at home in the context of a global economy also rapidly slipping."
  • 2009 stimulus didn't work, why should Jobs Act. Jack Rasmus. "Obama's 'Jobs Act' Proposal: Why Less Is More of the Same." Truthout. September 14th, 2011: "In February 2009, President Obama proposed $787 billion in economic stimulus. Unemployment was about 25 million. More than two years later, after the $787 billion has been spent, unemployment (measured by the Labor Department's U-6 rate) is still around 25 million. Why, therefore, should Obama's latest proposals to create jobs, consisting about half the size of the 2009 stimulus, expect to create jobs when the larger stimulus did not?"
  • Tax cuts didn't help in 2009, they won't help in Jobs Act. Jack Rasmus. "Obama's 'Jobs Act' Proposal: Why Less Is More of the Same." Truthout. September 14th, 2011: "The 38 percent tax cut mix in 2009 amounted to about $300 billion in total tax reduction. That $300 billion followed a $90 billion tax cut less than nine months before in spring 2008. Another $50 billion in tax cuts was further added later in 2009-2010 in various bills and administrative actions. That's a total of $440 billion in tax cuts. There's more. Add to that $440 billion another $270 billion in Bush tax cut extensions in late 2010 for 2011, plus another $100 billion in this year's payroll tax cut. Now, add the Job Act's tax-heavy $270 additional billion. Now, we're well over $1 trillion in tax cuts in just the past two years. And what's been the result in jobs? Still 25 million unemployed today as in June 2009."
  • Increasing taxes on successful corps will do harm. Motoko Rich. "Employers Say Jobs Plan Won’t Lead to Hiring Spur." New York Times. September 9th, 2011: "David Catalano, who helped found Modea, a digital advertising company in Blacksburg, Va., said that he was wary of the president’s pledge to ask the 'wealthiest Americans and biggest corporations to pay their fair share.' His company was organized as an S Corporation, in which profits are passed through to shareholders, so it would face higher taxes under the president’s proposal, he said. He added: 'My partner and I have reinvested 100 percent of the profits that our agency has made over the last five years back into the company. If the government takes a bigger share of that from me, it directly impedes my ability to grow the agency.'"
  • Markets aren't necessarily supportive of stimulus, Jobs Act. "A man and a plan." The Economist Buttonwood Notebook. September 9th, 2011: "On the merits of stimulus, Martin Wolf had a strong column in the FT arguing that the markets were telling the US to borrow and spend. This is a point that has been made by Free Exchange in the past; with real yields negative, it is surely the ideal time to invest in infrastructure that can generate a positive return in terms of growth. One can quibble with this a bit. The markets are telling us many things; they are worried about growth and scared of Europe; the gold price shows they have worries about the stability of the dollar. Very low bond yields at the short end are also the result of deliberate Fed policy; at the long end, they may be set by Asian central banks, for whom exchange rate management may be more important than profits. Indeed, the Chinese, a very big player in the bond market, aren't calling for more stimulus. when US debt was downgraded, the news agency Xinhua said that 'The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of its own messes are over.'"


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Relief: Does the Jobs Act provide tax relief to working families?

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Pro

  • American Jobs Act cuts payroll tax, relieves working families. Fact Sheet for the American Jobs Act. White House: "4. Tax Relief for Every American Worker and Family. Cutting payroll taxes in half for 160 million workers next year: The President’s plan will expand the payroll tax cut passed last year to cut workers payroll taxes in half in 2012 – providing a $1,500 tax cut to the typical American family, without negatively impacting the Social Security Trust Fund. Allowing more Americans to refinance their mortgages at today’s near 4 percent interest rates, which can put more than $2,000 a year in a family’s pocket."
  • Jobs Act rebalances tax code between wealthy, middle class. "A Good Jobs Program." The New York Times. September 13th, 2011: "When he laid out his jobs plan last week, Mr. Obama powerfully presented a series of choices — a status quo of high unemployment, deteriorating human capital and crumbling infrastructure or a renewed push for recovery and relief measures to get the economy moving again. That means choosing between a tax system that coddles the rich or reorienting the code in favor of the middle class. The tax increases Mr. Obama has recommended are a step in the direction of middle-class prosperity."
  • Jobs Act ends egregious tax cuts, loop holes for wealthiest. Average CEO makes 185 times that of the average worker, according to the White House. CEOs and the wealthiest can afford to pay a little more.
  • Jobs Act focuses subsidies on those needing them most. "A Good Jobs Program." The New York Times Editorial. September 13th, 2011: "It is also fair tax policy. Under current law, the largest subsidies go to people who need them least — for such things as mortgage interest and charitable giving — because the value of tax breaks rises as income and tax rates rise. Capping such breaks helps to ensure that subsidies are focused on Americans who need them most."


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Con

  • Jobs Act is class warfare; taking hard-earned money. "Class Warfare Act." Neal Boortz Blog. September 15th, 2011: "let’s talk about this concept that you just don’t deserve to keep all of your money. If you’ll remember, during the tea party debate the other night, a young man stood up in the audience and asked how much money do these candidates believe he should be able to keep? Here’s why the prog thought process on this concept is dangerous. You wake up at 4:30am to get to your first job on time. You bust your buns to earn a paycheck. Then later that afternoon, you show up to work at your second job, because things have been kind of tight and you and your wife could use some extra cash while you save up to buy a house or take care of a sick parent, whatever. You drive home late that night, in the dark, and you wake up early the next morning to do it all over again. You are the one busting your buns to earn this money. You are trading off some of the minutes you have to spend on this earth to produce this wealth. It belongs to you. It is yours. You decide how to spend it, how to save it and how to invest it. Then along comes government. It puts a gun to your head and says, You owe us 35% of everything you worked for. Hand it over. And the man does so, because otherwise he will end up in a jail cell. In the world according to Jan Schakowsky, that money that you worked so hard to earn? You don’t really deserve it. After all; you -- or at least a portion of you -- belongs to the government. And just how much of you belongs to the government? Well, that’s up to people like Schakowsky to decide."
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Infrastructure: Does the American Jobs Act help modernize US?

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Pro

  • AJA helps employ workers in modernizing America. Fact Sheet for the American Jobs Act. White House: "2. Putting Workers Back on the Job While Rebuilding and Modernizing America. A 'Returning Heroes' hiring tax credit for veterans: This provides tax credits from $5,600 to $9,600 to encourage the hiring of unemployed veterans. Preventing up to 280,000 teacher layoffs,while keeping cops and firefighters on the job. Modernizing at least 35,000 public schools across the country,supporting new science labs, Internet-ready classrooms and renovations at schools across the country, in rural and urban areas. Immediate investments in infrastructure and a bipartisan National Infrastructure Bank, modernizing our roads, rail, airports and waterways while putting hundreds of thousands of workers back on the job. A New “Project Rebuild”, which will put people to work rehabilitating homes, businesses and communities, leveraging private capital and scaling land banks and other public-private collaborations. Expanding access to high-speed wireless as part of a plan for freeing up the nation’s spectrum."
  • More than 2,700 miles of road need repairing.[3]
  • Bad infrastructure adds to congestion, commute time. White House Jobs Act Slide Show: "The American commute has never been longer, topping 100 hours a year."[4]
  • Jobs Act will help reduce airline delays. White House Jobs Act Slide Show: "2010 total airline delays topped 19,000,000 minutes."[5]
  • Jobs Act helps rebuild schools and kids learn. White House Jobs Act Slide Show: "44% of principals say that the poor condition of their schools interferes with their students' learning. 1 in 3 public schools could be repaired or modernized."[6]
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Con

  • AJA gives more to risky corp tax breaks than infrastructure. "A man and a plan." The Economist Buttonwood Notebook. September 9th, 2011: "if one thinks of the country as a business, a very cheap cost of funds ought to allow for profitable investment opportunities. And there is lots of America's infrastructure that needs mending. However, only $80 billion of the $450 billion plan is devoted to infrastructure spending, with the rest on tax breaks such as cuts in payroll taxes."
  • No guarantee corps will spend tax breaks in Jobs Act. "A man and a plan." The Economist Buttonwood Notebook. September 9th, 2011: "There is no guarantee that companies will spend the money on such things. Some might use it to pay down debt; others might spend the money on m&a or buy-backs, Richard Koo's book about the Japanese crisis, The Holy Grail of Macroeconomics, details how, despite near-zero interest rates, companies focused on repaying debt. There is good news here; the general health of the corporate sector is sound so they might be tempted to use this extra cash to expand payrolls. But by being politically canny in the way he framed this package, the President may have put his re-election hopes in the hands of the CEOs of the S&P 500."


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Debt: Is the American Jobs Act deficit neutral?

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Pro

  • American Jobs Act will be fully paid for. Fact Sheet for the American Jobs Act. White House: "5. Fully Paid for as Part of the President’s Long-Term Deficit Reduction Plan. To ensure that the American Jobs Act is fully paid for, the President will call on the Joint Committee to come up with additional deficit reduction necessary to pay for the Act and still meet its deficit target. The President will, in the coming days, release a detailed plan that will show how we can do that while achieving the additional deficit reduction necessary to meet the President’s broader goal of stabilizing our debt as a share of the economy."
  • Cutting spending in 2011 has slowed the recovery. Jackie Calmes. "Bigger Economic Role for Washington." New York Times. September 13th, 2011: "the new House Republican majority and Mr. Obama had spent much of the year negotiating spending cuts to reduce deficits. But economists and bond investors have grown increasingly critical of those cuts, warning of a repeat of 1937, when government austerity helped caused a double-dip recession. Moody’s Analytics has estimated that the current fiscal policy would subtract 1.7 percentage points from gross domestic product next year. State and local cuts have eliminated 259,000 jobs this year."
  • Responsible jobs act has more spending now, taxes later. "A Good Jobs Program." The New York Times. September 13th, 2011: "On Sept. 8, Mr. Obama proposed a $447 billion job-creation initiative, and on Monday, he proposed a sensible package of tax increases to pay for it — saying, in essence, that a sane fiscal policy requires more careful government spending now and eventually higher taxes."
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Con

  • Jobs Act is sketchy on how exactly to pay for itself. "A man and a plan." The Economist Buttonwood Notebook. September 9th, 2011: "This newspaper has been arguing in favour of short-term stimulus as long as it is accompanied by plans to tackle the fiscal shortfall in the short-term. On this point, the Obama plan was sketchy to say the least. It said that "To ensure that the American Jobs Act is fully paid for, the President will call on the Joint Committee to come up with additional deficit reduction necessary to pay for the Act and still meet its deficit target. The President will, in the coming days, release a detailed plan that will show how we can do that while achieving the additional deficit reduction necessary to meet the President’s broader goal of stabilizing our debt as a share of the economy." The first part of that paragraph throws the ball into the court of this super-committee which will need to work miracles; the second may be a political hostage to fortune. By detailing future tax increases (or spending cuts), the President will give the Republicans something to attack ('Obama is slashing x to pay for his bill')."
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