President Obama proposed a larger-than-expected $447 billion American Jobs Act. More than half the package is for an expansion of this year’s payroll tax cuts and similar relief for employers. Tax cuts of this type may have limited bang per buck, but they can be implemented quickly, important given the urgency of the jobs problem. Also included is money to extend long-term unemployment compensation. It is nice to see funds for aid to state and local governments to rehire teachers and first responders. Cutbacks by states and localities have been a major negative factor in the economy overall, so this is welcome relief. The plan has relatively limited direct government spending on infrastructure. While such spending has potentially large multiplier effects, one lesson from the 2009 ARRA stimulus is that it takes a long time to get that going. Overall, the jobs package is welcome. If it were all approved, it would amount to perhaps 3% of GDP. A quick guesstimate is that this would reduce the unemployment rate by 1-2 percentage points, based on past UHERO analysis of federal stimulus. Not enough to solve the unemployment problem, but a good down payment. Now let’s see what Congress will do…
