(Reuters) - President Barack Obama on Thursday is expected to offer a plan to jump-start flagging U.S. job growth that relies on a package of tax cuts and government spending that could cost upward of $200 billion.
With the U.S. recovery at risk of stalling and unemployment stuck above 9 percent, Obama is under heavy pressure to find a way to breathe more life into the economy.
His success could determine whether he wins a second term in the November 2012 elections.
Reuters asked some prominent economists and leading Washington think-tanks what they would recommend to Obama if they were his economic advisers.
The following are their submissions:
The jobs crisis mainly reflects a lack of international competitiveness for lower skilled workers in the United States. The United States has been shedding manufacturing jobs for high-school graduates (indeed all those without a bachelor’s degree) for well over a decade. This was disguised by the housing boom, which temporarily created jobs in (nontradeable) construction until the bubble burst in 2008. Those construction jobs in housing are not coming back any time soon.
Thus, a real jobs program needs to be a “competitiveness program,” involving: major public investments in education, training, job matching, technological upgrading, and infrastructure. Today’s unemployed kids should be back in school or in training and apprenticeship programs, not put on “shovel-ready” dead-end jobs.
A serious jobs program is therefore not a quick fix, but a fundamental reorientation of the economy in the age of globalization. It should be paid for by higher taxation on the rich and on multinational companies that are parking vast overseas profits in international tax havens and hideaways. To give more tax breaks to those deadbeats would be a travesty and a macroeconomic failure.
What would a bold jobs bill look like? Here are the 10 components I’d recommend:
1. Exempt first $20,000 of income from payroll taxes for two years. Make up shortfall by raising the ceiling on income subject to payroll taxes.
2. Recreate the Works Progress Administration and Civilian Conservation Corps to put long-term unemployed directly to work.
3. Create an infrastructure bank authorized to borrow $500 billion a year to repair and upgrade the nation’s roads, bridges, ports, airports, school buildings, and water and sewer systems.
4. Amend bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence, so they can reorganize their mortgage loans.
5. Allow distressed homeowners to sell a portion of their mortgages to the Federal Housing Administration, which would take a proportionate share of any upside gains when the homes are sold.
6. Provide tax incentives to employers who create net new jobs ($2,500 deduction for every net new job created).
7. Make low-interest loans to cash-starved states and cities, so they don’t have to lay off teachers, fire fighters, police officers, and reduce other critical public services.
8. Provide partial unemployment benefits to people who have lost part-time jobs.
9. Enlarge and expand the Earned Income Tax Credit -- a wage subsidy for low-wage work.
10. Impose a “severance fee” on any large business that lays off an American worker and outsources the job abroad.
Some of these won’t cost the federal government money. Others will be costly in the short term but lead to faster growth.
Remember: Faster growth means a more manageable debt in the long term. Which means the president could tie this (or any other jobs bill of similar magnitude) to an even more ambitious long-term debt-reduction plan than he’s already proposed.
A bold jobs bill is good politics and good policy.
It boils down to three words: “Do less harm.” The economy has reached a point where it doesn’t need a lot of poking and prodding from the federal government. It would be able to recover if only the government would get out of the way.
President Obama should stop threatening to raise taxes and halt the regulatory onslaught, which are creating uncertainty and freezing business decisions. He should send the free trade agreements with South Korea, Colombia and Panama to Congress.
Pursuing a “do less harm” doctrine, Obama should press Congress to make current tax policy permanent. At a minimum, he should be leading the charge to extend current policy until the economy returns to near full employment.
The vital missing ingredient in the economy is confidence, while the key debilitating factor today is an excess of uncertainty. Many of Obama’s efforts have, not surprisingly, only served to sap confidence while heightening uncertainty. For example, the economy would be well-served if the president would stop threatening to raise income tax rates that fall heavily on small businesses and investors, the most productive elements of the economy.
This same approach applies to federal spending. Substantial spending reductions would resolve questions over the federal debt and work toward recovery of the nation’s triple-A credit rating; substantial spending reductions become an essential component of a “do less harm” economic growth policy.
Obama should choose job growth over ideology, opting for smaller, less intrusive government over a philosophy that says government should seek to address every problem afflicting the economy and society.
HOWARD ROSEN, RESIDENT VISITING FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS
President Obama and Congress need to place a high priority on policies that are expected to raise business investment in plant and equipment over the medium to long term. At the same time, the president and Congress must act immediately to stop any more workers from dropping out of the labor force.
The federal government should provide assistance to state and local governments in order to immediately stop the hemorrhage of state and local government employment.
* Congress should reauthorize and fully fund the Workforce Investment Act, including significantly expanded resources for state and local one-stop work force centers.
* There is likely to be a fight in Congress over continuation of extended unemployment insurance, which is scheduled to expire at the end of this year. President Obama and Congress might consider conditioning UI extension on requiring workers to enroll in aggressive job search assistance programs and/or training.
* Provide employment bonuses and wage insurance to workers who find jobs within the first 26 weeks after layoff, financed from the unused portion of weekly UI payments as encouragement for workers to return to work sooner.
Ironically, over the last eight months Congress has refused to renew the Trade Adjustment Assistance program, which already provides many of these innovations. Congress should immediately reauthorize TAA and even consider temporarily relaxing its eligibility criteria in order to provide the program’s targeted and intensive assistance to more workers.