President Obama proposed a new set of job-creation proposals Tuesday designed to confront a stark problem: Even though the rate of job cuts in the economy has eased, the pace of hiring remains far below normal.
That issue – how to spur hiring – is the central one for policymakers considering how to bring down America’s unemployment rate in the next year.
Mr. Obama said his proposals have the best chance to succeed, delivering the “greatest number of jobs [at] the greatest value for our economy.”
His proposals came in three broad areas:
• Small business. A new temporary tax credit would go to businesses that add workers to their payrolls. Other tax breaks would encourage business investment, such as a one-year capital-gains tax rate of zero for new investments in small firms. Obama also called for continuing programs already under way to support small-business lending.
• Infrastructure. The president called for more spending on transportation and water projects in the next year, expanding the existing stimulus spending in this area by perhaps $50 billion.
• Clean energy. He proposed rebates for families to retrofit their houses to be more energy efficient. Modeled on the “cash for clunkers” scheme that boosted auto sales this year, the program has been dubbed “cash for caulkers.”
The key ideas will require congressional approval, so many of the details and dollar figures must still be negotiated in coming weeks.
Obama’s proposals come as the job market has stabilized somewhat, but with employers still reluctant to hire.
The job market includes lots of monthly turbulence, as several million workers are hired, fired, or leave their jobs. The key is how it all nets out: Are employers adding more workers than they are letting go?
Rate of hiring far below normal
What’s happened during this recession is that the rate of hiring has fallen far below the normal, and well below the level seen during and after the 2001 recession. Today, employers are hiring just three workers each month for every 100 jobs in the economy. More typical would be a 4 percent hiring rate, judging by Labor Department records on job turnover that go back only 10 years.
“Even though we have reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who have been swept up in the flood,” Obama said in his speech, given at the Brookings Institution in Washington. “There are more than 7 million fewer Americans with jobs today than when this recession began.”
That leaves what Obama called a big “hole” to fill, even though economists say the initial Obama stimulus program, the $787 billion American Recovery and Reinvestment Act, may have saved or created about 1 million jobs this year.
White House officials shied away from providing an overall cost estimate for the new proposals, but $200 billion might be an upper limit. That’s the amount by which the costs of the Troubled Asset Relief Program (TARP) are beating forecasts, according to the Treasury.
In a briefing for reporters before the speech, a senior administration official said the fact that the TARP costs for bank rescue are less than expected provides fiscal “space to do … a set of jobs proposals and have a lower deficit” in the federal budget. The official said some other factors will add a bit more fiscal wiggle room as well.
Tapping TARP a good idea?
Republican lawmakers, however, question the idea of considering TARP "savings" as a source of funds.
Just because one program has come in with a smaller cost than expected doesn’t magically create money to use in another place, they argue. The TARP program added to the deficit, and the new jobs program will too, they say.
“[Obama is] doubling down on the big-government ‘stimulus’ approach that isn’t working,” House minority leader John Boehner of Ohio said in a statement Tuesday. “Never mind that the implications of having a $12 trillion national debt and red ink as far as the eye can see continue to pile up, the latest being the threat of a downgraded credit rating.”
Critics of White House policies also say that more needs to be done to fix credit markets, and that Obama has dampened hiring by making employers uncertain about the tax and regulatory climate in the years ahead. They also warned that it will be hard to design the new tax credit so that it is both effective at spurring hiring and can’t be gamed by employers.
Within his three-part plan, Obama called for a range of steps, including:
• Extending Recovery Act tax breaks for businesses to depreciate the cost of equipment.
• Increasing Small Business Administration loan guarantees, and continuing Treasury efforts to use the TARP to support small business lending.
• Expanding a Recovery Act program that provides incentives for businesses to invest in the production of renewable energy in the US.
The White House also said it is working with Congress on other expanded stimulus efforts: to extend the Recovery Act provision that helps jobless Americans pay for COBRA health insurance, to provide $250 payments to seniors and veterans, and to grant a new round of aid to state and local governments.
Follow us on Twitter.