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WASHINGTON (AP) — A tentative thumbs-up.
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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.
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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.
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“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.”
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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.
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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 percent to 4.2 percent.
Employers still pay the 6.2 percent rate.
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Obama would renew the tax cut for a year and deepen it: He would
drop workers’ Social Security tax to 3.1 percent.
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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.
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Obama would also halve Social Security taxes for businesses whose
payrolls are $5 million or less. The White House says that would
include 98 percent of U.S. businesses.
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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.
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“Something like this is much needed” for an economy grappling with
9.1 percent unemployment, Zandi said. “The economy is on the edge
of recession.”
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Susan Wachter, a finance professor at the University of
Pennsylvania’s Wharton School, figures that the Social Security tax
cuts alone would add 1 percentage point to economic growth and
create 1 million jobs next year.
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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 for more than six months. As of August, the
government says, 43 percent of unemployed Americans have been out
of work for six months or more.
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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.
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Consumer spending accounts for about 70 percent of the
economy.
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Some economists cautioned, though, 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.
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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.
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“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.
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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.
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“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.
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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.
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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.
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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.
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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.
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Still, the Wharton School’s Wachter called Obama’s plan a serious
proposal that should be politically acceptable “across the
board.”
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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 percent in the first six months of the year
and created zero net jobs in August.
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He said he fears that Obama’s plan merely makes up for the
expiration of the president’s earlier $862 billion economic
stimulus plan.
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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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