House Republicans have said they’re willing to work with Obama on payroll tax provisions and they have expressed support for some spending on infrastructure. But progress may be slow. Even now, two bills for funding construction at airports and on highways are tied up in interparty fighting in Congress.
The substantial majority of the jobs program would take effect within a year.
“I think it’s a laudable effort to try to boost the economy and the job market over the next 18 months. It’s big enough to turn fiscal policy from being a significant headwind to a modest tailwind,” said Mark Zandi, chief economist at Moody’s Analytics, who has advised both Democrats and Republicans.
But Douglas Holtz-Eakin, a conservative economist, said the plan would make little difference.
“It’s a philosophy that is more of the same — more temporary policies of a stimulus nature on the tax and infrastructure side that are unlikely to be significant enough to move the dial. It’s more political than real,” he said.
The jobs plan is a mix of new ideas and extensions and expansions of existing policies.
Obama is proposing extending and expanding the payroll tax cut, which this year was lowered to 4.2 percent from 6.2 percent. He proposes reducing that further in 2012, to 3.1 percent. The administration hopes the expanded tax cut would put more money into the pockets of middle-class families and spur them to spend at a time when a lack of consumer demand is a major drag on the economic recovery.
Obama will encourage hiring by cutting the payroll taxes that companies pay. Like workers, companies would need to pay only 3.1 percent in payroll taxes, half the 6.2 percent they now pay. In addition, firms that hire more workers or increase salaries would face no payroll taxes. The administration seeks to limit the employer payroll tax cuts so they would not be a boon for big corporations, which are already sitting on $2 trillion in cash that could be used for hiring.
Economists generally regard the payroll tax cuts as important tools to drive the economic recovery but say that the employee and employer parts of the plan have drawbacks.
“If you give somebody a tax cut and they just save it, then there are no jobs created,” said Nigel Gault, chief U.S. economist with IHS Global Insight. “Direct spending is probably better because direct spending directly creates jobs.”
Gault said there is another problem with the employer-side tax cuts. “All these proposals would be for one year. How much extra incentive is that going to give a business?” he said.
Obama is proposing $140 billion in government spending with most of that going toward the building of highways, roads, railways and aviation facilities, as well as modernizing public schools and community colleges.
The president is also responding to the major budget crunch affecting states and localities that has led to mass layoffs of municipal employees, especially teachers. His plan proposes $40 billion in aid to prevent the layoffs of up to 280,000 teachers — as well as police officers and firefighters.
The final part of the plan seeks to extend unemployment insurance benefits for the jobless. This effort, which would cost $62 billion, would overhaul unemployment insurance so that the jobless could continue to receive benefits while in job training. It also would offer tax credits of up to $4,000 for companies that hire people who have been unemployed for more than six months.
The president’s plan would subsidize employment for young workers as well as poor workers.
The plan proposes little for the nation’s housing market, which is one of the biggest drags on the economic recovery. He directed his housing team to work with Fannie Mae, Freddie Mac and their regulator, the Federal Housing Finance Agency, to expand a refinance program that allows underwater homeowners to refinance their mortgages at historically low interest rates.
Staff writers David A. Fahrenthold and David Nakamura contributed to this report.