President Obama tells a joint session of Congress that it is time to end the political circus and pass the "American Jobs Act".
"Those of us here tonight can't solve all of our nation's woes. Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers. But we can help. We can make a difference. There are steps we can take right now to improve people's lives.
"I am sending this Congress a plan that you should pass right away. It's called the American Jobs Act. There should be nothing controversial about this piece of legislation. Everything in 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.
"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. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. 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. "
WASHINGTON – A tentative thumbs-up.
That was the assessment Thursday night from economists, who offered mainly positive reviews of President Barack Obama's $447 billion plan to stimulate job creation.
Some predicted it would put hundreds of thousands of people back to work next year, mainly because a Social Security tax cut for workers would be deepened and extended to small businesses.
MORE: Obama pitches his plan
"Payroll tax cuts are very powerful," said Allen Sinai, chief economist of Decision Economics. "They provide a boost to direct income and, in turn, spending, which is important to growth."
Mark Zandi, chief economist at Moody's Analytics, estimated that the president's plan would boost economic growth by 2 percentage points, add 2 million jobs and reduce unemployment by a full percentage point next year compared with existing law.
The heart of Obama's plan is an expansion of the Social Security tax cut, which took effect this year and is scheduled to expire by year's end. The tax cut now applies only to workers; it reduces their Social Security tax from 6.2% to 4.2%. Employers still pay the 6.2% rate.
Obama would renew the tax cut for a year and deepen it: He would drop workers' Social Security tax to 3.1%.
Under his bigger tax cut, an extra $1,550 would go to taxpayers earning $50,000 a year. The Social Security tax is imposed on the first $106,800 of taxable income. That means the maximum savings would be about $3,300 for an individual and $6,600 for a couple.
Obama would also cut in half Social Security taxes for businesses whose payrolls are $5 million or less. The White House says that would include 98% of U.S. businesses.
Zandi calls this a "creative" way to help small companies, which have struggled more than larger ones to recover from the Great Recession of 2007-2009. During recoveries, small businesses normally drive job creation.
"Something like this is much needed" for an economy grappling with 9.1% unemployment, Zandi said. "The economy is on the edge of recession."
Susan Wachter, a finance professor at the University of Pennsylvania's Wharton School, figures the Social Security tax cuts alone would add 1 percentage point to economic growth and create 1 million jobs next year.
The president's plan also takes a shot at long-term unemployment: Companies would get a $4,000 tax break for hiring people who have been unemployed more than six months. As of August, the government says, 43% of unemployed Americans have been out of work six months or more.
The plan would also extend emergency unemployment benefits; ramp up spending on public works projects; and provide aid to keep state and local governments from laying off teachers. Obama would pay for his program with future budget cuts.
Some economists cautioned that some factors might blunt the impact of Obama's enlarged Social Security tax cut. For one thing, the tax cut would deliver only a temporary boost. It would expire at the end of 2012. Most economists foresee unemployment remaining high well after next year.
And Michael Mandel, chief economic strategist for the Progressive Policy Institute, suggested that the link between consumer spending and job creation is weaker in an economy like America's that's highly open to foreign goods.
Consumer spending accounts for about 70% of the economy.
"If the payroll tax cut encourages consumers to buy more (imported) clothing, that's likely to create more jobs overseas than in the U.S.," Mandel said.
In addition, Paul Ashworth, chief U.S. economist at Capital Economics, said many taxpayers might save the extra money from the tax cut rather than spend it.
"In an environment where economic confidence has been almost completely destroyed, there is a risk that both households and small businesses will save a greater proportion of any windfall, particularly if they know the reduction is only temporary," Ashworth said.
The White House plan would also extend emergency unemployment benefits for another year. Economists note that unemployment checks put money in the hands of people who are most likely to spend it immediately.
That spending tends to boost demand for goods and services and give companies more reason to hire. The forecasting firm Macroeconomic Advisers has estimated that an additional year of emergency unemployment benefits would support 200,000 jobs in 2012.
Obama also wants $30 billion to modernize schools, $50 billion for road and bridge projects and a bank that would finance more public works projects.
The president's plan will likely face resistance in Congress. Republicans have opposed further spending and have pushed to reduce the budget and shrink the government.
Still, the Wharton School's Wachter called Obama's plan a serious proposal that should be politically acceptable "across the board."
Menzie Chinn, an economist at the University of Wisconsin, would favor an even bigger jobs package for an economy that grew at an annual rate of just 0.7% the first six months of the year and created zero net jobs in August.
He said he fears Obama's plan merely makes up for the expiration of the president's earlier $862 billion economic stimulus plan.
Even so, Chinn said, the measures Obama proposed Thursday night "might prevent the economy from dropping below stall speed" — at which point it would be vulnerable to another recession.
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