Tuesday, September 13, 2011

The American Jobs Act, by the numbers

So, let me get this straight. Mr. Obama is proposing giving payroll tax breaks totaling $245B to spur "employment".
Then he adds $100B in "infrastructure".
Then finishes off with $60B in unemployment aid.
“The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working,” Obama said. “It will provide a jolt to an economy that has stalled and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away.”
Ok, so the goal is to reduce unemployment. Let's assume that the target is 4 million jobs (which would likely reduce the unemployment rate to something like 7% and would, in my mind, spur substantial economic growth enough to put us on a much more optimistic growth path. The first stimulus created (or saved) "up to 3.6 million jobs" (per CBO), so 4 million isn't an unrealistic figure.
...“The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” Obama said. “The question is whether we can restore some of the fairness and the security that has defined this nation since our beginning.”
[An aside: those are two questions. Two distinct questions. They are related in that one's concept of "fairness and security" is the crux of the political differences that have become such a "circus", but Mr. Obama is a participant in the circus.]

This quote seems to me to be relevant in thinking through what the overall impact of the plan will be:
“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.
Thankfully, he let congress wait until he told us how he planned to pay for it.
President Obama announced plans Monday to fund his $447 billion jobs bill largely by raising taxes on wealthier families, provoking immediate opposition from congressional Republicans. The sequence of event suggests that despite the recent pledges of greater bipartisanship, many of the fiscal and economic stumbling blocks that have left Washington gridlocked in recent months remain firmly in place. “This is the bill that Congress needs to pass,” Obama said. “No games. No politics. No delays.” The White House said Congress should pay for the jobs plan by imposing new limits on itemized deductions for individuals who earn more than $200,000 a year and families earning more than $250,000. Eliminating those deductions would bring in an additional $400 billion in revenue, aides said.
$400B in deduction elimination just might affect things like a small business owner (let's say an operator of a half dozen dry cleaners) open that next location (can't afford to go over $250K and become a millionaire!)
$40B in "closing loopholes for oil and gas companies". I'm not a huge fan of oil and gas companies, but I don't see their profits being usurious (the raw dollar figures are huge, but look at how many freakin' gas stations there are in America). I won't count this as a tax increase, because oil and gas companies can avoid the tax by not making investments that can't be deducted. I can only assume that those $40B in "loopholes" will prevent oil and gas companies from buying things (that might be made by other companies and umm, people [aka employees]). This "puts more people back to work"? Hate to be the doohickey manufacturer that supplies a lot of gelderfarb connectors to the oil and gas industry. Might be a tough couple of years, might have to lay off some people.
$18B taxing "carried interest" as regular income. The "tax Warren Buffet" tax plan. I don't mind this in that this type of earnings is more akin to what ordinary people think of as payroll income vs. investment income, but you're taking an additional $18B in taxes out of people's pockets.
$3B expense corporate jets over five years instead of seven. Hmm. Hate to be a corporate jet manufacturer this year. I don't know what the "correct" depreciation schedule for a jet is, but I know from the lessons of the 1990s and "luxury cars and yachts" that congress will be passing a bill in the next year or so restoring the old schedule in order to "save American jobs". Don't know how many people it takes to build a corporate jet, but assume that it's not going to be a growth area for the next little while.
Call it $418B in tax increases, $43B in tax "modifications" that -- whether you agree with them or not -- are not job creators.

So giving $245B in tax cuts - $418B in tax hikes = +3M jobs.
You're putting 3% more cash in the pockets of the "average" guy... at $40K/year, that's like $100/month? I guess that counts as "more money in the pockets of those who are working", but.. wow, doesn't make me think they'll be investing in a new car. Or a used car. Or a new washer. Or even that blender you've had your eye on. Maybe an extra trip to the restaurant once every couple of months, but more likely save it up for a nicer set of Christmas gifts, or a rainy day.

No matter how you slice it, unless these $250K-aires are stuffing the money into their mattresses, you're taking $418B out of disposable money and doling it out to "the people" in such totally insignificant amounts that it doesn't make sense to assume that any job growth will occur. I don't pretend to know the breakdown of how these $250K-aires use their $418B, but I would assume that at least some (and probably a lot more than "some") are spent on things like nice Christmas gifts, cars, washers, and yes, that new blender they had their eye on.

Not a chance of this working; not a chance that Mr. Obama thinks this will work. This looks to me like the essence of political theatre, and the only job that he wants to affect is one.

We are the jolt we've been waiting for.

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