Why Obama's jobs bill makes sense

This recession and recovery has been terrible. More jobs were lost, and they're taking longer to come back. Why is that, and what can government do to help?

The recession was caused by the breaking of the housing bubble. Housing prices dropped by about a third. This had a particularly strong effect on consumers because many of them had a large percentage of their net worth tied up in their homes. As a result, the average Americans' net worth fell by almost 25% during the recession. To make up for this shock, and given the uncertainty in the labor market, many Americans have started saving instead of spending. Given that consumer spending makes up about 70% of the economy, that's a recipe for a recession and a slow recovery.

It's also a recipe for making Republicans' plans for across-the-board tax cuts ineffective. Untargeted tax cuts are likely to be saved, particularly those tax cuts given to top earners, adding to the piles of cash banks are already sitting on. Money saved is not as stimulative as money spent, as we need people buying things to mkae up for the drop in consumer spending. Untargeted tax cuts might also be used to buy things from overseas.

Republicans are also pushing for corporate tax cuts. Corporate income taxes in America already add up to a smaller total, as a percentage of GDP, than corporate income taxes in any other OECD country. Corporations are sitting on a record amount of cash. Corporate profits are at an all-time high. I have yet to see any convincing evidence that jobs will come if we just give corporations just a little bit more, but that's what Republican candidates are proposing.

Obama's preference in the American Jobs Act for targeted tax cuts, including payroll tax cuts and tax credits for hiring veterans and long-term unemployed, ensures that any lost government revenue is spent specifically on the best solution, American jobs. Instead of giving tax cuts to people who may or may not use it to add jobs, Obama's plans will only give tax cuts to job creators. And instead of labelling every rich guy and job-cutting corporation a "job creator" as the Republicans do, the only way to get tax benefits is to actually create jobs.

Preview of Obama's Speech Tonight

With the President giving a speech before a joint session of Congress tonight, I'm going to push back the conclusion my analysis of the Republican plan to eliminate (or save, if you prefer) Medicare. I'll also be discussing last night's Republican debate, and more generally my opinions on the Republican field, in the near-future.

The President's speech tonight, along with yesterday's debate, which was the first to include front-runner Texas Gov. Rick Perry, marks the true beginning of the 2012 election. President Obama will be laying out proposals to increase jobs. If the "leaks" are to be believed, he will be proposing somewhere between $300 billion and $500 billion in new spending and tax cuts for things like an extension of unemployment benefits, a payroll tax cut extension, job training, school construction, and infrastructure spending. I haven't seen any specifics on how he will propose to pay for this spending, but it is likely it will include closing some tax loopholes as he advocated during the debt ceiling fiasco.

He will essentially be daring the Republicans to vote his proposals down. Republicans have spent the last 3 years villifying Obama and his policies, so it seems fairly likely that they'll oblige him in this dare. Given that Republicans have been attacking policies they used to support (which we'll be discussing more in depth in future posts), it will be politically untenable for them among their own base to vote for hundreds of billions in new spending.

Once they are on the record as voting down a jobs bill, Obama will be able to go to voters and make a surprisingly good case that he's done all he can on jobs and the economy, given the relative lack of power he has on economic matters vis-a-vis Congress.

-The recent downturn in job creation corresponds fairly closely to the draw-down of the original stimulus spending.

-The CBO estimates the stimulus bill meant there are now 1.3 million to 3.3 million more jobs than there otherwise would have been.

-Some liberal economists, such as the New York Times' Paul Krugman, argue that the stimulus should have been bigger, but since the vote in the Senate barely beat a Republican filibuster, it is unlikely that he could have gotten a bigger package passed.

-Depending on the analysis, the spending cuts forced through by Republicans during the deficit debate, along with failing to extend payroll tax cuts and unemployment insurance, will cost as many as 1.8 million jobs in 2012.

-The things he is reportedly proposing tonight would have been fairly non-controversial just a few years ago. Refusing to go along with things like infrastructure spending, job training and tax cuts for workers will make it much easier for Obama to lay the blame for the economy at the feet of Republicans in Congress.