Obama wants jobs bill passed 'right away', but at what cost?

In a rare address to a joint session of the Congress, US President Barack Obama seems to have aimed at a shock and awe strategy as he unveiled a $447-billion jobs plan to get Americans back to work.The President was blunt about his expectations for Congressional support of his ambitious plan, saying: “You should pass this right away.” In fact, he urged lawmakers to pass his proposal - called the American Jobs Act - “right away” six times in his 32-minute speech.

“There should be nothing controversial about this piece of legislation,” the president said. “Everything here is the kind of proposal that’s been supported by both Democrats and Republicans - including many who sit here tonight. And everything in this bill will be paid for. Everything.” Really? We’ll soon find out.

The highlights of the plan include:

More than half the dollar value of the plan is geared towards payroll tax cuts. The plan provides for $194 billion in spending and $253 billion in tax cuts, according to an analysis from CNBC.Obama is proposing a $175-billion 1-year extension and expansion of the employee payroll tax holiday that would halve the tax rate to 3.1 percent in 2012.

About $65 billion is to be used to encourage small businesses to hire more workers. About $105 billion will go towards infrastructure spending to provide money for school modernisation, transportation projects and rehabilitation of vacant properties. About $30 billion will be used to modernise schools and community colleges. At least 35,000 schools would be repaired and modernised, among other provisions. About $35 billion will be used to keep teachers, firefighters and police officers in their jobs, of which $30 billion will go to schools and $5 billion to the police and firefighters. Most of the economic impact from the infrastructure spending would be next year, though some of it would come in 2013, an administration official said.

Some $5 billion is to be used to help low-income youth and adult workers, supporting summer and year-round jobs for young people and support subsidised work for unemployed low-income workers.

Companies will get a $4,000 tax credit for hiring a person who has been out of work for more than six months. About $50 billion is headed for highways, transit, rail and aviation, including upgrading US airports and supporting Nextgen Air Traffic modernisation.

Close to $49 billion is marked for a 1-year extension of long-term unemployment benefits that would otherwise expire, which the White House says prevents 6 million jobless Americans from losing benefits.

Obama also said he would ask the Congress to increase the $1.5 trillion target in deficit reduction being pursued by a special joint congressional committee to cover the cost of the American Jobs Act.He said he would propose his own deficit-reduction plan on September 19 that would reform entitlement programmes such as Medicare while changing the tax system to end loopholes, lower the corporate tax rate and increase taxes for the wealthy.“Ultimately, our recovery will be driven not by Washington, but by our businesses and workers,” the president said in his speech. “But we can help. We can make a difference.”

Reactions to Obama’s speech were mixed. Initial reactions suggested that while the plan seemed to have some good, workable elements, it was short on details, especially on how the package would be funded. Most experts expected some political wrangling before the bill is passed. In fact, in what seemed like a pre-emptive action to fend off possible Republican resistance, the President kept repeating the phrase “Pass this bill” - something that was rivalled only by his use of another phrase - “right away”. In addition, the fact that more than half the stimulus is composed of tax cuts seems designed to appeal to anti-government-spending Republican members of the Congress. However, bipartisan cooperation could be hard to come by in Washington’s climate of political dysfunction where a bruising debt feud this summer brought the country to the brink of default and led to an unprecedented US credit downgrade.

“Forceful, yes. Demanding, perhaps. Impatient, very much so,” wrote Stephen Stromberg, deputy opinions editor on a Washington Post blog, referring to Obama’s performance. On the plan itself, he said the idea of infrastructure spending was good, but the president would have to do more to clarify how this round would be more effective than the spending of 2009 - when the first round of stimulus spending was introduced. “Building and repairing roads, bridges and levees is attractive on its own merits - it can drive long-term economic expansion - and the prospect that new construction can help with America’s jobs problem, too, is tantalising,” he wrote. But, he said, “the president will have to do more to explain how his new infrastructure spending will enter the economy faster than money from the 2009 stimulus did - just what “red tape” he would cut out of the process.” That view was also shared by some other experts.

“Don’t forget this is the president who failed at creating infrastructure jobs before. I don’t see why he should get it right these days,” a commentary in TheStreet.com, a US news and analysis website, said, adding that Obama should have focused more on the housing crisis if he wanted to get the US economy back on track.

Sharing that scepticism was Adam Sorensen, associate editor of Time.com, who also thought the effects of Obama’s speech - and plan - would be limited . “Some of his proposals, already in place in some form this year, haven’t prevented the recovery from grinding to a halt. Plenty of others won’t pass the sniff test in the GOP-controlled House. And there’s little evidence that presidential rhetoric can significantly move votes in Congress, let alone the needle of public opinion. But Obama needs to ignite a fire under the recovery (or his base) to get re-elected. And that’s the spark he tried to create Thursday night.”

However, Mark Zandi, chief economist at Moody’s Analytics Inc, was more optimistic : he thought the fiscal boost from the jobs package next year would be larger than in the first year of the 2009 economic stimulus. He also forecast passage of the entire jobs package would add 2 percentage points to economic growth next year and bring down the unemployment rate by 1 percentage point compared with current policy, under which a temporary payroll tax cut and an extended unemployment benefitsboth expire on 31 December.

Still, the broader opinion is that the details will still have to be awaited on how this larger-than-expected package will be implemented. That remains key to whether the Bill will ultimately be passed by Congress. For sure, expect some resistance from the Republicans who are rigidly opposed to any forms of additional fiscal spending. However, as the BBC noted , the plan is “designed to put him in a situation where any outcome is a win. In the unlikely event the Republicans go for this, he has the policy he wants. If they don’t, he campaigns against them, portraying them as against job creation, against the American people”.

Michael Yoksikami, president and chief investment strategist at US-based YCMNET Advisors summed it best when he said the plan is “bigger than what we were looking for, suggesting a rea l shock and awe strategy. This is almost half a trillion dollars, which isn’t an insignificant step. My initial reaction is that what’s needed to move job growth is tax credits, and the extension of the payroll credit makes sense. We’ll have to see how this gets paid for, and how big the whole thing ends up being after negotiations. If the proposal is that this will be paid for through higher taxes on the wealthy, that will have major roadblocks.”

So, don’t start applauding just yet.

Watch video: Obama sees US crisis, pushes $447bn jobs plan

(With inputs from Agencies)