In his address on September 8, 2011, President Obama proposed a $447 billion Jobs Act. What we got from Obama was a 2009 Stimulus Light proposal, with all the problems of the prior 2009 stimulus package in the form of inadequate magnitude of spending, wrong composition and targets, and bad timing. First, on the matter of the magnitude of spending in the proposal. Put in context, $447 billion won’t achieve the job creation it claims. It’s once again too little for an economy the size of the
In February 2009, President Obama proposed $787 billion in economic stimulus. Unemployment was about 25 million. More than two years later, after the $787 billion has been spent, unemployment (measured by the Labor Department’s U-6 rate) is still around 25 million. Why should Obama’s latest proposals, about half the size of the 2009 stimulus, expect to create jobs when the larger stimulus did not? Even more important, like the 2009 stimulus, it is overloaded in tax cuts. In fact, a greater percentage (60 percent) of the total Jobs Act is composed of tax cuts than was the 2009 stimulus (38 percent).
The 38 percent tax cut in 2009 amounted to about $300 billion in total tax reduction. That $300 billion followed a $90 billion tax cut in the spring of 2008. Another $50 billion in tax cuts was added later in 2009-10 in various bills and administrative actions for a total of $440 billion in tax cuts. Add to that another $270 billion in Bush tax cut extensions for 2011, plus another $100 billion in this year’s payroll tax cut. Now add the Job Act’s tax-heavy $270 billion and we’re well over $1 trillion in tax cuts. And there are still 25 million unemployed.
If someone needs still further evidence that tax cuts don’t create jobs in today’s environment, just step back a decade. In 2001-04 George W. Bush passed another $3 trillion in tax cuts, overwhelmingly biased toward the rich and their corp-orations in the form of capital gains, dividends, inheritance, business deprecia-tion, and other corporate largesse. Over 80 percent of the $3 trillion went to the wealthiest 20 percent households and most of that to the wealthiest 5 percent and 1 percent. What kind of job creation resulted? We had the longest jobless recession in
Furthermore, most of the jobs created under Bush were in the Finance and Housing sectors of the economy, which were both undergoing a boom due to speculative excesses before an eventual bust. These jobs had little to do with Bush’s tax cuts, however. Instead, millions of jobs were being lost in manufacturing while the tax cuts were taking effect. In 2004 Bush also pushed through a bill to allow multinational corporations to repatriate their then-$700 billion hoard of cash they were keeping offshore in their subsidiaries in order to avoid paying the
How much more will corporate
But Obama’s tax-heavy proposal is not the only problem. His Jobs Act is too heavily weighted in favor of subsidies to the states. The 2009 stimulus provided $264 billion in subsidies to the states. It was supposed to create jobs. It didn’t. Local government laid off hundreds of thousands of workers despite the $264 billion. Will the states get the subsidy only if they first prove they’ve added the jobs? Don’t count on it.
Another problem with the composition of Obama’s Jobs Act announcement is that it repeats the promise of the 2009 stimulus that infrastructure spending will create jobs. In 2009 about $100 billion was allocated to infrastructure-related spending that was supposed to create 4 million jobs. That didn’t happen. There were 6.4 million construction workers employed in June 2009. There are 5.5 million today. There just weren’t as many shovel-ready jobs as was claimed. Construction and infrastructure jobs are long term. What is needed today is immediate job creation. Infrastructure programs just won’t cut it.
Obama promised his proposals would focus on small business by subsidizing their hiring of workers for each job they create. But for small business to create jobs, it needs more than a partial hiring subsidy. It needs funds to cover all the other costs of production. For that, small business needs bank loans and for two years now bank lending to small business declined for 15 consecutive months after June 2009 and it’s not much better today. Obama and the Federal Reserve bailed out the big banks to the tune of $9 trillion in the expectation they would start lending. They didn’t. They still aren’t. Like the big corporations hoarding their $2 trillion and not creating jobs, the big banks are hoarding their cash reserves. Obama would have done better to propose the Federal government bypass the banks and directly loan to small business at 0.25 percent. After all, that’s the interest rate at which the Fed today loans to the big banks. No, I take that back. Actually it’s only 0.1 percent, and then the Fed pays the banks 3 percent to temporarily park the free money with the Fed in the interim. What a deal: the Fed pays the big banks to take its free money.
In summary, what we got from Obama’s Jobs Act was more of the same. Of course, the proposed Jobs Act won’t pass anyway because the Teapublicans will oppose it. At best, they might try to cherry-pick out the business tax cuts and then add even more tax cuts. The day before the president’s address, the Teapublican candidates gathered to hold their latest debate. They stumbled all over each other to see who could promise corporate
A real job program today would be proposals and programs to re-create, in 21st century form, a Works Progress Administration—paid for by taxing the rich and their corporations’ $2 trillion cash hoard, their $1 trillion in excess free Fed money bank reserves, their $1.2 trillion held in offshore subsidiaries, and the more than $6 trillion they’ve stashed away in tax havens around the globe, from the Cayman islands to the Seychelles to Vanuatu and, of course, Switzerland.
Jack Rasmus is the author of the Epic Recession: Prelude to Global Depression and the forthcoming Obama’s Economy: Recovery for the Few (Pluto Press and Palgrave-Macmillan, January 2012).