President Obama unveiled his $447 billion jobs program about the same time Bank of America announced they would cut 30,000 jobs. It’s starting to feel like America is caught in a spaghetti western like The Good, the Bad and the Ugly where you can’t seem to catch a break. Likewise, President Obama’s plan contains a mixture of the good, bad and ugly with implications that will affect the pocketbooks of every American.
- Focus on creating jobs. First, it’s great that Washington has decided that creating jobs is job number one. There have been way too many distractions since The Great Recession began back in 2008.
- Spending on infrastructure and modernizing schools. What I like about this is that is speaks directly to job creation. When you spend money on roads and bridges, you immediately create a ripple effect of new jobs that goes way beyond just construction along with tractor service workers. These projects typically span multiple years creating a sustainability that will be vital for economic growth. And once you’re finished, you have permanent improvements that will last for decades.
- Payroll tax cuts. I’m definitely going to get some disagreement on this one. Over half of the $447 billion is in the form of reduced payroll taxes for both employees and employers thus putting more money in every worker’s pocket. This certainly sounds like a great and popular idea so why do I place it in the ‘Bad’ category? The problem is that this money will do little to create new jobs. Think about it. If you receive $1,000 more in your paycheck throughout the year, what are you going to do with it? You’ll either save it, pay down debt, or spend it. To the extent that you save it or pay down debt, you’ll do little to create new jobs. And right now, a lot of people are focused on debt reduction and savings. And employers aren’t going to hire someone they don’t need just because they received a tax cut.
- Restrictions on tax-free muni bonds. The plan includes limiting the tax break on muni bonds to 28% versus the current 35% for couples earning over $250,000. Limit this benefit and the effect will be immediate: borrowing costs for municipalities will go up at a time when many are laying off employees in order reduce deficit spending. If expenses go up, more layoffs are likely.
- Higher taxes on high income earners. President Obama continues to press for higher taxes on high income earners. This fight could get ugly as he faces off with freshman house members who have pledged, “No new taxes!”
This is a good first step and both Republicans and Democrats must come together with a bipartisan plan where every dollar spent will create new jobs. Until then, uncertainty will rule and the stock market will remain skittish.
To quote Clint Eastwood from the movie The Good, the Bad and the Ugly, “Two hundred thousand dollars is a lot of money. We’re gonna have to earn it.” Here in America, we’re trying to jump-start a multitrillion dollar economy and we’re all going to have to pitch in to get the job done.