August 23, 2011
With only a few weeks until President Obama delivers a plan to jumpstart a moribund economy while curtailing the long-term debt, experts say the President has two choices: Either go “big and bold” with a plan almost certain to outrage Republicans but galvanize his political base, or take more incremental steps to seek common ground.
Obama has promised to spell out a series of ideas in a major address shortly after Labor Day, once he and Congress return from the August recess. The political stakes couldn’t be higher for the President heading into a tough election season, with the economy in a near stall, unemployment stuck at 9.1 percent, a downgraded U.S. credit rating, the markets seemingly in the throes of a nervous breakdown, and Obama’s job approval rating at a near-record low of 40 percent.
“Between now and the election, the President is not going to have a lot more potentially high-impact moments,” said William Galston, a former adviser to President Bill Clinton and a senior fellow at the Brookings Institution. “Everyone wants to see an affirmative boost and not simply a continuation of a rescue approach that keeps swimmers nostrils’ above the water lines, but only marginally.”
New or expanded hiring tax incentives or payroll tax holidays already touted by the President won’t substantially boost the economy in the long term and will detract from larger-ticket economic engines like tax and entitlement reform, said Doug Holtz-Eakin, a former Congressional Budget Office director. “These things are only temporary, and are going to have trivial impacts overall on the scale of the recovery,” he said.
David Axelrod, Obama’s campaign strategist, said over the weekend that the President’s jobs proposal won’t all be new ideas. “Some will be new,” he told ABC News on Sunday. “Some we’ve already talked about.”
‘Make a Difference and Change the Mood’
But to make a real economic difference, the President needs to move beyond his proposals to extend the payroll tax cut and unemployment insurance and lay out at least one or two significant policy proposals in his speech, experts say. “If I were the President, rather than focusing on a handful of little items, I would be focusing on one or two things that could really make a difference and change the national mood,” Galston said.
Introducing a major mortgage relief initiative, Galston predicts, would be the most-likely policy game-changer. “There have been suggestions here and there that the White House is trying to work out something large and compelling in the area of mortgages and mortgage adjustment,” he said.
The government will need to lower
the corporate tax rate and adopt a
territorial system for overseas
corporations to remain competitive.
“He needs to go big, go long and go global.”
Holtz-Eakin contends that fast-tracking reforms to the tax code could create more lasting incentives for businesses to hire. The federal government will need to lower the corporate tax rate and adopt a territorial tax system for overseas corporations to remain competitive, he said.
“So why not accelerate provisions that we know would be in tax reform but have economic benefits now?” he said. Moreover, beginning work on reforms of Social Security, Medicare and other entitlements could also reap economic benefits for the U.S., he added.
As he and his family spend a 10-day vacation on Martha’s Vineyard, Obama has been bombarded with advice from friends and foes alike on the next critical round of budget and tax negotiations with the Republicans. “President Obama has only one option as he ponders a world economy teetering on the edge: He needs to go big, go long and go global,” wrote liberal columnist E.J. Dionne, Jr., on Monday.
A ‘Dare’ to Spur Economic Growth
During the past two budget crises, when Republicans threatened to shut down the government and force a default on U.S. debt, the President chose conciliation over brinksmanship; in both cases GOP leaders extracted most of what they were seeking. Now, with the two sides heading into a third round of wrangling over long term spending and tax policy, House Majority Leader Eric Cantor, R-Va., and other congressional Republican and Tea Party leaders are virtually daring him to suggest anything more than a heavy dose of cuts in government spending and entitlement programs and reductions in red tape, to help bring down the $1.5 trillion budget deficit and spur economic growth.
“The Obama administration’s anti-business, hyper-regulatory, pro-tax agenda has fueled economic uncertainty and sent the message that ‘we want to make it harder to create jobs,’” Cantor wrote in an op-ed piece in the Washington Post on Monday.
But egged on by angry and disillusioned Democrats and administration critics, Obama has decided to press Congress for a new round of stimulus spending, tax incentives and possible revenue increases to address the economic crisis while making another major downpayment on long term deficit reduction. While pushing for fresh spending to address the current economic slump, the President will also urge the new congressional “Super Committee” to identify even more savings than the $1.5 trillion it has been tasked with finding.
Here are major proposals already touted by Obama or under serious consideration:
1. Extend the Payroll Tax Cut: As part of a bipartisan spending deal last December, Congress approved Obama’s request to reduce the workers’ share of the Social Security tax on their wages from 6.2 percent to 4.2 percent for one year. Obama says the payroll tax cut gave the typical family $1,000 more to spend, and by extending the reduction for an additional year the government could spur consumer spending and job creation. If not, the rate will return to 6.2 percent on Jan. 1.
Obama would also extend the Hiring Incentives to Restore Employment (HIRE) Act that exempts businesses that hire new employees from paying their share of those workers’ Social Security tax (6.2 percernt of wages), and grants them a tax credit of up to $1,000 for workers they retain for at least one year.
2. Extend Unemployment Benefits: Jobless benefits were extended to the current 99-week maximum in 2009 and reauthorized five times since, most recently at the end of last year. The deadline to apply for extended federal benefits expires in the first week of January. Obama said that extending unemployment insurance again would “help people get back on their feet.”
3. Help the Long-Term Unemployed: The White House is reportedly considering a program that targets some of the 6.2 million Americans who have been out of work for six months or more. The initiative would be modeled after a Georgia program that allows jobless workers receiving unemployment insurance to train for jobs at participating businesses, at no cost to the employer. Under the “Georgia Works” program, workers can collect unemployment benefits and a small stipend for transportation costs while undergoing eight weeks of training at a participating company. The company can then decide whether to hire the worker.
4. Invest in Infrastructure: Obama proposed creation of a $50 billion national infrastructure bank in a Labor Day speech a year ago. The bank would be used to rebuild 150,000 miles of roads, renovate 150 miles of airport runways, and build and maintain 4,000 miles of rail over six years. The program would fund highway, bridge, railroad and airport projects through a mix of low-interest private and public loans and investments. The President included a somewhat less ambitious proposal in his fiscal 2012 budget, creating an infrastructure bank as part of the Transportation Department that would receive $30 billion over six years to provide loans and grants for transportation and infrastructure projects.
5. Reform the Patent System: Obama insists that reform of federal patent laws would help spur economic growth and employment by cutting “the red tape that stops too many inventors and entrepreneurs from quickly turning new ideas into thriving businesses.” The patent system hasn’t been overhauled in 60 years, and many procedures contribute to a backlog of applications. A patent reform bill is pending in the Senate that would, among other things, establish a clear standard for determining who was first to file a patent.
6. Reform the Tax Code: In his State of the Union address, Obama said he was open to lowering tax rates if the tax base is broadened by eliminating tax breaks for wealthy individuals and corporations. That is the stance he reiterated in a June speech and during the debt ceiling debate, when he chastised Republicans for refusing to consider eliminating tax breaks for oil companies and corporate executives who use private jets.
7. Create New Tax Incentives: Earlier this month, Obama proposed to grant employers a $2,400 tax credit for every unemployed veteran they hire and $4,800 for hiring a veteran who has been unemployed for six months or longer. Other measures under consideration include a payroll-tax holiday, a net job-creation tax and other targeted tax breaks for hiring from specific groups.
8. Fix Homeowner and Mortgage Relief Programs: Obama admitted in July that his administration’s housing policies failed to effectively address the nation’s housing crisis. He classified his efforts to help struggling homeowners as “not enough… And so we’re going back to the drawing board.” The administration’s foreclosure prevention program called the Home Affordable Modification Program came under fire from critics who called it too fleeting to work, and said its structure was too complicated for the housing industry to execute.
So, readers, what do you think? Are these ideas bold enough – or will Obama have to come up with a stronger arsenal of measures to shake the economy out of its lethargy and get it back on track? Tell us which of the above proposals you favor – and why – in the comment field below.