President Obama's $450 billion stimulus revolves around a plan to extend and expand the payroll tax cut. It also includes incentives for businesses to hire workers -- with a separate tax credit for hiring long-term unemployed workers -- and it extends unemployment benefits for another year. And it's all offset with a plan to reduce our long-term deficit.
This is a tax-side stimulus to encourage business to hire and put more money in the pockets of both the employed and the unemployed.
Expanding immediate tax stimulus for an economy with struggling demand is smart. And $450 billion is a big number. And the ideas in the speech are boldly, even pugnaciously, presented. But the heart of this plan is an extension of current policies plus a moderate expansion of certain policies. For example, we already have a payroll tax stimulus. We already have unemployment benefits. Companies already have incentives to hire. Still, the economy is growing at less than one percent and job creation is, literally, zero.
Extending and expanding current policies is a necessary thing with economic and labor growth falling to lows since the recession. In the current political climate, this is probably as bold as the president can go. But to borrow a metaphor from football (which followed minutes the president stopped talking), this is neither a 40-yard bomb nor a straight draw for the running back. It's a checkdown pass. Carefully diagrammed, measured to bypass the defense, and just enough to move the ball downfield.
1) Payroll tax cut. The central item is the payroll tax extension and expansion. Let's explain that. Normally, you would pay 6.2 percent of your wages in taxes. In 2011, you paid only 4.2 percent, thanks to a compromise reached in December. But in 2012, according to the president's plan, you would pay a tax on only 3.2 percent of your wages. That comes out to nearly a 50 percent tax cut on work, worth about $1,500 per year for a typical worker.
2) Incentives to hire. The president: "Small businesses will get a tax cut if they hire new workers or raise workers' wages. It's a fine idea, but not revolutionary." Passed in 2010, the HIRE Act already gave tax breaks to businesses who hired previously unemployed workers
3) A tax credit to hire the long-term unemployed. The president: "Pass this jobs bill, and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job."
4) Extending unemployment insurance for another year.
5) A tax credit to hire veterans. The president: "Pass this jobs bill, and companies will get extra tax credits if they hire America's veterans."
6) Housing help. The president: "To help responsible homeowners, we're going to work with Federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4% -- a step that can put more than $2,000 a year in a family's pocket, and give a lift to an economy still burdened by the drop in housing prices."
7) Deficit Reduction through tax reform and spending reductions that include Medicare and Medicaid: The president: "In addition to the trillion dollars of spending cuts I've already signed into law, it's a balanced plan that would reduce the deficit by making additional spending cuts; by making modest adjustments to health care programs like Medicare and Medicaid; and by reforming our tax code in a way that asks the wealthiest Americans and biggest corporations to pay their fair share. What's more, the spending cuts wouldn't happen so abruptly that they'd be a drag on our economy, or prevent us from helping small business and middle-class families get back on their feet right away."
8) School Investment. The president promised legislation that would save teacher jobs and modernize "at least 35,000 schools." Details were short.