Five things we don’t know about Obama’s jobs plan

(AFP/GETTY IMAGES) President Obama’s jobs speech made a few things immediately clear: He wants to go big, and he’s ready to be aggressive in pushing his plan to Congress and to the public. But there are also big questions that haven’t been answered. Like how the $450 billion proposal would affect the economy, how it would be paid for, and whether any part of it will pass Congress.

1) Will payroll tax cuts actually spur businesses to create jobs?

These reductions are at the heart of Obama’s plan, but the benefits of all these cuts aren’t assured, as my colleague Brad Plumer explained yesterday. The boost on the employee side is more straightforward: Doing nothing would result in a payroll tax cut hike at the end of the year, dampening economic growth and hurting job creation. Obama’s plan would not only extend the tax reduction for workers, it would also bring the rate down even further. But some economists warn that the tax break to employers could simply give them a temporary windfall that doesn’t actually result in job growth if consumer demand remains anemic and firms remain loath to hire. “This is a waste of money,” said Syracuse University’s Len Burman, commenting on the employer tax breaks. The targeted tax credits rewarding businesses for new hires might be the most direct boost to job creation, but that could ultimately just be a change on the margins.

2) Even if the whole bill passed, would it pull the economy out of the crisis zone?

The early economic forecasts for Obama’s plan were generally positive. On the more conservative end, Macroeconomic Advisers estimated that the plan would boost GDP by 1.3 percent by 2012 and 0.2 percent by the end of 2013. On the more bullish end, Moody’s Mark Zandi put the estimate at 2 percent for 2012. But would that be enough to pull the economy out of the doldrums? Economic growth is projected to be at 2 percent, and Harvard economist Jeffrey Liebman estimates that “we need real GDP to grow at 4.5 percent a year for two years to bring the unemployment rate below 7 percent.”

Under Zandi’s best-case scenario, the plan would bring GDP growth to 4 percent, still falling short of Liebman’s prescription for lift-off. And since most of the plan’s impact will be felt in 2012, that means that another stimulus of some kind would be needed in 2013 to bring the unemployment rate back to earth — or at least below 7 percent. That being said, any kind of life support from Washington at this point would be better than doing nothing.

3) How will Obama propose to reform Medicare, and will he really touch Medicaid as well?

The president promised that his entire plan “will be paid for,” but he didn’t offer a menu of specific details, which will be released in another week. Instead, he alluded to a few big areas where he planned to find the money, including reforms Medicare and Medicaid. His options in this sector, at least, will be fairly limited. Obama’s previously floated the idea of raising the Medicare eligibility age to 67, which the Congressional Budget Office estimates would save $124.8 billion by 2027 if it were gradually phased in. But even Republicans who support the change wouldn’t want it to take effect immediately, so it’s unlikely that this would produce any real money to pay for the bill within 10 years, which is the window of time the CBO will consider in estimating the plan’s cost.

Obama could propose squeezing more money out of pharmaceutical companies in Medicare Part D: Both House Democrats and Bowles-Simpson supported a change along these lines that would save an estimated $120 billion. But that would be a huge lift politically, as pharma lobbyists successfully beat back that idea during the health-reform debate. There are other savings that could be achieved by making Medicare more efficient, but these won’t add up to much, compared to the cost of Obama’s jobs bill.

Finally, Democrats made sure to exclude Medicaid from the purview of the “supercommittee.” So it’s unclear how far Obama will really go in squeezing the program when his allies have decried benefit and provider cuts. One alternative, however, could be improving care coordination for patients who qualify for both Medicaid and Medicare, whose long-term care costs a disproportionate amount of money.
4) Will Obama try to revamp the whole tax code, or focus on eliminating tax breaks for the wealthiest?

As another way to pay for his plan, Obama vowed to eliminate tax breaks for “wealthy Americans and CEOs” and promised a corporate tax overhaul that would eliminate loopholes for oil companies, among others. Politically speaking, a laser-like focus on the wealthy would draw the sharpest distinction between Obama and his GOP opponents, which the president seemed intent on doing last night. But the president has also previously voiced support for a broad-based tax overhaul that would flatten and simply the tax code, hold down rates, and eliminate loopholes across the board — an approach that many Republicans want to take as well. Comprehensive tax reform would cast Obama as more of a consensus-builder than a partisan, but it also might be too ambitious, far-reaching and politically tricky to squeeze into a single bill.
5) What could actually pass Congress?

The biggest question of them all. The likelihood that congressional Republicans will be willing to sign off on all the ideas that Obama laid out yesterday is basically nil, given its huge scope and hefty price tag. Republicans on the supercommittee — which Obama charged with passing his plan first — have already criticized the president for making their already monumental task even harder. A few components of Obama’s plan, however, may have a relatively better chance — namely the payroll tax cuts, which the GOP signed off on last December. Some reforms to unemployment insurance to bring beneficiaries more quickly into the workplace have received GOP support on the state level and could also squeak through. But there will still be a fight in Congress about how to pay for even piecemeal reform measures, which could scale down the scope and impact of each of these proposals.