There's going to be a lot of talk over the next few days about the jobs plan that President Obama put forward in a big speech to Congress last night. Since it's no fun listening to conversations you don't understand, we've put together an FAQ for those of you who are not just kind of confused, but utterly, hopelessly clueless about what Obama has proposed.
Why do we need a jobs plan?
Really? Have you not picked up a newspaper any time in the past couple of years?
I killed a spider with a USA Today back in October 2010.
Well, there was probably an infographic in that USA Today explaining how dire the employment situation is in this country. Unemployment remains above 9 percent, a net of zero (!) jobs were created in August, and the economy is growing at a torpid pace. The government needs to do something to incentivize hiring and consumer spending.
So that's why President Obama gave his State of the Union address fourth months early?
It may have looked like a State of the Union address, but it if you listened at all —
I didn't. I kept it on in the picture-in-picture box as I watched a rerun of Jersey Shore. So what's in the plan?
The plan, which Obama has named the American Jobs Act, is essentially a second stimulus. Among its specific proposals: a payroll-tax cut for employees, a new payroll-tax cut for employers, a payroll-tax holiday for businesses that hire new workers, an extension of unemployment benefits, aid to states for hiring teachers, and spending a hundred million dollars on infrastructure projects like repairing roads and renovating schools.
Whoa, that was a lot of things. I'm dizzy.
Okay, relax. Let's just break this down one proposal at a time.
Awesome idea. Start with the payroll-tax holiday. Is this an all-inclusive, Club Med type of thing? Are drinks included?
It's not a real holiday.
No. Usually, money is automatically taken out of everyone's paychecks for Social Security. It's called the payroll tax. Because of earlier cuts, workers are currently only paying 4.2 percent instead of the normal 6.2 percent. Obama wants to lower that further to 3.1 percent. Employers, as opposed to employes, also pay the payroll tax. Obama wants to cut their rate to 3.1 percent, too. In order to target this tax cut to small businesses, it would only apply to employers who spend under $5 million on payroll. And businesses that hire more people or raise the wages of their existing employees will get a payroll-tax holiday, meaning they won't have to pay their share of payroll taxes at all. They get a holiday from the payroll tax. Get it?
Yes. Just to be clear, does this count toward their vacation days?
It has nothing to do with vacation days.
Okay. So is this going to be help?
Sort of! The tax cut for workers will put more money in everyone's pockets, increasing consumer demand and boosting economic growth to some degree. The tax cut for employers is supposed to make it more attractive to hire new people — more jobs! — although economists aren't sure that a tax cut is enough of an incentive. As economist Bruce Bartlett recently pointed out, only 4 percent of small businesses cite labor costs as their biggest problem; lack of demand is the more pressing concern.
Maybe the government should create more demand?
Somehow you've stumbled onto a good point! More demand is essentially the rationale behind infrastructure spending. By doling out $140 billion on modernizing schools and building roads and bridges, the government will provide the demand that construction companies and manufacturers have been lacking. And we need all that stuff anyway, so win-win.
Ah, I see. So is the government increasing demand for teachers, police officers, and firefighters by giving birth to more kids, committing more crimes, and setting more fires, respectively?
Eh, no. All those people are already in demand, but cash-strapped state governments simply don't have the money for them right now. That's why Obama is proposing $35 billion in direct aid to the states to prevent layoffs, and encourage the hiring, of teachers, and to a lesser degree, police officers and firefighters.
I'm not hearing a lot here for people who are already unemployed.
Well, Obama also proposed extending federal unemployment insurance, while also reforming it so that it encourages the training of unemployed workers.
All of this sounds very expensive.
It comes out to a total of about $450 billion.
Whoa! How many Big Macs is that?
Because that's the only way I can comprehend a number that big.
Okay ... it's like, 150 billion Big Macs?
How are we going to pay for all those Big Macs?
It's not clear yet. Obama would like the super-committee — a bi-partisan Congressional group already working on reducing the debt — to include an extra $450 billion in savings in the plan it eventually produces. Obama will make suggestions next week for how they should do that.
When is Congress going to pass the American Jobs Act?
If Obama had his druthers, they would pass it "right away." But it's highly unlikely that Congress will pass the entire plan at any point. Since the Senate is controlled by Democrats and the House is controlled by Republicans, both parties have to agree on the proposals, and each side is already unhappy with various components. More likely is that only the most popular, uncontroversial ideas make it through. According to Politico, "GOP leaders are planning to pick the most passable items out of the bill — trade agreements, small business relief measures, revamped unemployment insurance — and pass them separately."
So all the stuff I've been trying to wrap my mind around for the past ten minutes may not even happen? What a waste of time.
What would you have done instead?
Probably watch some more Jersey Shore reruns.
The day is young, my friend.