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Economists show support for Obama job-growth plan

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Economists show support for Obama job-growth plan

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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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