Many economists say Obama jobs plan will help

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. "

In this Aug. 31, 2011 file photo, people wait to enter a job fair at Crenshaw Christian Center in South Los Angeles.

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.

Obama: Debt Ceiling Talks Fell Apart, Boehner Walked Out

WASHINGTON -- Social Security and Medicare may have been saved by the Tea Party's refusal to accept President Barack Obama's "grand bargain."

On Friday evening, Speaker John Boehner (R-Ohio) walked away from the latest offer on the table by Obama, who is now summoning congressional leaders back to the White House on Saturday to figure out an eleventh-hour plan. The most viable option left for addressing the debt crisis, crafted by a bipartisan pair of Senate leaders, calls for much smaller cuts than the ones the president was willing to make.

"No one wants to punt until default is the only other option," a Democratic aide said Friday morning, before the Senate voted down a House offer that coupled a debt ceiling raise with a radical constitutional amendment.

With the "Cut, Cap and Balance" bill out of the way, the lone obstacle to the debate's conclusion was the talks between Boehner and Obama. The collapse in those grand bargain negotiations paradoxically move the broader debt ceiling negotiations closer to an end. And not a moment too soon: The White House has repeatedly said that July 22nd was the day by which Congress must have identified a path forward and begun work toward its passage.

During a hastily called press briefing on Friday night, Obama said Boehner called him half an hour earlier and "indicated he was going to be walking away" from the compromise the two of them had been privately working on. A Democratic source told The Huffington Post that the president had called Boehner on Thursday evening to discuss the deal, but never heard back. The president tried again Friday afternoon. He finally got a return call at 5:30 p.m. The speaker, the source added, briefed the press about his decision to pull out of the deal before telling Obama.

Speaking to a half-filled room of reporters, the president laid out just how dramatic the cuts to the social safety would have been in the deal he was trying to give Republicans. He said that he couldn't believe Boehner walked away from the proposal he was offering: $3.5 trillion in spending cuts over 10 years, smaller tax increases than those laid out in a bipartisan Senate plan and cuts to entitlement programs, something Democrats have pushed hard against. It also didn't include revenues that Obama has insisted be in a final package, namely via closing tax loopholes and ending subsidies for the oil and gas industry.

"In other words, this was an extraordinarily fair deal," Obama told reporters. "If it was unbalanced, it was unbalanced in the direction of not enough revenue."



Obama: Boehner Withdraws From Debt Talks
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The president appeared genuinely flummoxed at the talks falling apart, saying there "doesn't seem to be a capacity for [Republicans] to say yes." He said he couldn't believe Congress would "end up being that irresponsible" as to impose a "self-inflicted wound on the economy at a time when things are so difficult."

The New York Times also played a major part in the breakdown of talks between Boehner and the White House, reporting Thursday that the pair had moved very close to a deal. Both sides spent the rest of the day knocking down the report, while Senate Democrats fumed that the White House was caving. Privately, Senate Republicans charged Sen. Charles Schumer (D-N.Y.) with orchestrating the debacle in an attempt to blow up the negotiations.

The latest breakdown comes with about a week left until the Aug. 2 deadline, at which point the government is expected to run out of money to pay its bills. Even if a default is averted, the protracted debate over raising the debt limit has left the U.S. government dangerously close to having its credit rating downgraded. In that event, Americans could expect a spike in interest rates on their credit cards, student loans and mortgages, with ramifications felt through the U.S. and global economy.

"We have now run out of time," the president said. He said he told congressional leaders to come back to the White House at 11 a.m. on Saturday "to explain to me how we are going to avoid default."

In a press conference later Friday night, Boehner accused the White House of having “moved the goal post” in negotiations.

“The president demanded $400 billion more” in revenues when the two of them met Thursday, Boehner said, which is “nothing more than a tax increase on the American people.”

He said he and House Majority Leader Eric Cantor (R-Va.) were “very disappointed” by that demand. Boehner also sent a letter to House Republicans on Friday night explaining why he pulled out.

"It has become evident that the White House is not serious about ending the spending binge that is destroying jobs and endangering our children's future," the GOP leader wrote. "A deal was never reached, and was never really close."



Boehner: No One Wants a Government Default
At a briefing with reporters shortly after the president spoke, three senior White House officials laid out in detail their version of where the discussions fell apart.

On the discretionary spending front, both sides had "identical offers," said one of the officials. There would be $1.2 trillion in cuts over the course of ten years; $1 trillion in savings that would come from the draw-down of the wars in Afghanistan and Iraq; and $250 billion in savings in Medicare over the course of 10 years. Both sides had also agreed to attach a second piece of legislation, to be decided via the reconciliation budget process, that would have changed the retirement age for Medicare and changed the premium structure for Medicare Part B and D, while eliminating certain kinds of supplemental insurance. That bill would also contain changes to the way Social Security benefits were paid starting in 2015, with buffers put in to protect the lowest-income beneficiaries.

There was, in addition, an informal agreement to try and extend Social Security's solvency by an additional 75 years. How they would get there, however, remained a point of contention, with the president wanting a package of benefit and premium changes and Republicans focusing just on the benefit side. Unable to overcome that impasse, the two sides settled on vague language requiring them to meet that 75-year goal with future reforms.

Where the two sides remained apart were on Medicaid cuts, with Republicans demanding tens of billions of dollars more in cuts than the president was comfortable making. White House officials described that difference as possible to overcome, however.

The revenue component, in the end, remained unbridgeable. According to senior White House officials, each side had agreed to pass tax reform down the road that would result in $800 billion in revenue generated -- the equivalent amount of savings that would be achieved if the top-end Bush tax cuts were simply allowed to expire. The administration wanted $400 billion in revenues on top of that. Republicans wanted zero, and in statements on Friday night GOP leadership aides insisted that the White House had changed the contours of the negotiations by making that demand in recent days.

Obama offered to move off that $400 billion mark should GOP leadership lessen the type of cuts to entitlement programs they were demanding, White House aides said.

In addition, the two sides could not figure out what to do if that aspirational tax reform package wasn't achieved. The White House, at various points, proposed that the fallback option be the actual expiration of the Bush tax cuts for the wealthy. Republicans demanded that they have something as bluntly frightening to Democrats. On Thursday, GOP leadership proposed that the penalty for inaction on tax reform be the repeal of the health care law's individual mandate as well as the newly created Independent Advisory Board, which has been set up to find cost savings in Medicare. The White House balked at the offer.



"Our view was we are not going to put the individual mandate in a deficit reduction package," said a senior White House official. "But we were open to other ideas and there are any number of formulations for us."

All of which does not mean that the big deal is now dead. In fact, White House officials made it abundantly clear that they would welcome GOP leadership back into those discussions.

"The speaker withdrew from the talks. This offer is still available,” said one of those officials.

Boehner, at his briefing, said he didn’t think his relationship with Obama, or debt talks, are beyond repair. He said he planned to go to the White House on Saturday with other leaders.

At this stage, the most viable proposal left on the table appears to be a far less ambitious debt plan put together by Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.). Their proposal, dubbed a "fallback option," calls for $1.5 trillion in cuts, generates no new revenues and would put the onus fully on Obama to raise the debt limit, without Congress. It would also require the president to raise the debt ceiling in three increments over the next year and a half -- a politically driven requirement by McConnell aimed at making Obama take responsibility for all debt ceiling hikes ahead of the 2012 elections.

The other potential remedy -- for the president to exercise the so-called constitutional option and invoke 14th Amendment powers to raise the debt ceiling himself -- was ruled out, once again, during the White House briefing.

"There are no options other than a legislative solution,” said a senior White House official.

A Democratic staffer familiar with Hill negotiations concurred that the Reid-McConnell plan appears the most likely resolution. The fight now heads to the trenches: The leaderships of both parties will cobble together coalitions in the House and Senate that can move the package through. In both parties, the wings will generally oppose leadership and the center will hold, if history is any guide. The same coalition passed the Wall Street bailout and the Obama-GOP tax cuts.

"We are prepared to compromise consistent with our values," House Minority Leader Nancy Pelosi (D-Calif.) said in response to the news. "Speaker Boehner's ‘adult moment’ is long overdue. Our economy, our children's education, our seniors' security and our nation's fiscal soundness require that we act without further delay."

Of course, there's also the bipartisan Senate Gang of Six proposal, which would slash $3.7 trillion in deficits over 10 years and raise up to $1 trillion in new revenues through tax code reform. But that proposal has critics in both parties, and some say there isn't enough time to turn it into a bill, send it to various committees for debate and pass it by Aug. 2.

Frustrations are clearly high on both sides of the aisle. As Twitter blew up at the news of the Obama-Boehner talks crumbling, Cantor spokesman Brad Dayspring chimed in with a tweet knocking Obama for making it seem as if Republicans thwarted the process.

“As if there's really a question whether President Obama threw a tantrum at the White House last week - same guy just appeared,” Dayspring tweeted.

Rep. Peter Welch (D-Vt.) said Congress had to move fast now that things have gotten hairy. He warned that the situation is nothing like the government shutdown narrowly averted earlier this year.

"If you've got the speaker walking away from the White House -- astonishing in and of itself -- the next step is meltdown in the markets," Welch said. "This is tempting the markets to turn, and when they do, it will be sudden and savage, then things will be out of control and the damage will be huge and irreversible."