Last Thursday, President Obama stood before a joint session of Congress and called on both parties to pass his new jobs bill and pass it quickly. He has stated that the bill will pay for itself, and there is nothing controversial in it. That’s not entirely true. In fact, the controversial elements in the new jobs bill will likely keep much of it from becoming a reality. But as it stands, here are the tenets of the new jobs bill:
1. A 50% cut in payroll taxes for employers. The proposed bill would cut the employer portion of Social Security from 6.2% to 3.1% in the short term. It would also cut the Employee portion (currently at a discounted rate of 4.2%) another percentage point to 3.2% so that the Employer and Employee portions will almost match again.
2. Tax credits would be provided to employers who hire veterans and the long-term unemployed. If that sounds familiar, you are probably thinking of the Work Opportunity Credit that was designed to do the same basic thing and expired last year. This time around, the credit would be even more friendly to veterans.
3. There is a great deal of money in the bill for infrastructure, hiring back teachers and first responders, and one item that will make contractors happy and real estate investors sad. This bill would use federal funds to hire contractors to fix up some of the foreclosed homes currently owned by federal lending giants Freddie Mac and Fannie Mae. This would provide jobs to those contractors, but would move those properties out of the fixer-upper market into the general housing market.
While opponents may or may not object to the more of the same approach to stimulating the economy, they are certain to object to the more of the same approach to paying for it. With all due respect to the President, if he thinks there is nothing controversial in the bill he wasn’t paying attention to the budget battle or debt ceiling debate. Here is how it is paid for:
1. Itemized deductions would be hit when taxpayers’ incomes reach $200,000. For married filing joint, the threshhold would be $250,000. This should raise $400 billion. This controversial idea went no where when it was tried in 2009 and the President’s party controlled both houses of Congress, so don’t look for it to gain any traction this time around either. Considering this one idea would be the funding for nearly 90% of the jobs bill, my bet is this bill is dead on arrival.
2. $43 billion would be raised through ending tax subsidies for the oil and gas industries and the private jet industry. This is another measure that has failed to gain traction in recent budget debates and represents nearly the other 10% of funding this bill would require.
3. The bill does contain another provision which would raise about $18 billion from changing the way hedge fund managers are taxed. For a bill that is supposed to be non-controversial, this may be the only thing on the revenue side that has a shot of passing at this point.
As always, we will keep you informed of any changes to the situation and progress this bill makes towards becoming law.