Following my post last week, in which I flow-charted the various options available to President Obama to help boost hiring by businesses, I looked forward to analyzing the actual plan. Unfortunately, the “plan” he unveiled yesterday was so vague and short on specifics, that there’s not much to say, except to observe that this was more political theater than political action. The vague proposals would all be dependent on action by congress, already clogged with two major plans awaiting debate: health care and climate change legislation. Nothing meaningful on yesterday’s proposals is likely to happen anytime soon, other than perhaps extensions of unemployment benefits.
Nevertheless, the above-linked article contains the high-lights, as follows:
Here’s how Obama’s proposals break down:
Small Business: Obama would eliminate for one year capital gains taxes on new investments in the stock of small businesses. The details are not clear but the plan builds on an existing, less generous, Recovery Act tax break.
Obama would also extend through 2010 tax breaks for certain small business capital investments up to $250,000. And small businesses would get a tax break for hiring new employees. He would also eliminate fees for loans made through the Small Business Administration. Those fees had been waived for most of this year, but the funding ran out two weeks ago.
This wasn’t an option I put on my flow chart, since it does nothing more than add to business’ bottom line. One could argue that it might encourage business investment, but such investment is just as likely to destroy jobs by encouraging investment in automation in order to reduce labor costs.
Tax breaks for hiring new employees falls under “option 5” on my flow chart – providing government incentives for hiring new workers. Sounds great, but many have questioned the practicality of managing such a program in a way that avoids gaming the system. What is really a “new employee” vs. a replacement? I’ll be surprised to see any such program enacted and, if it is, the impact will be minimal. Few businesses are going to grow their labor costs (by $30,000 per employee, let’s say) in order to get some small tax break. For others who were going to hire anyway, it’ll simply be a give-away.
And eliminating fees on small business loans? The problem small businesses are having is that they can’t get credit at all. Those that can have such good business plans that loan fees aren’t going to stand in their way. I don’t see much effect from this.
Business: All companies would for another year pay fewer taxes on capital expenditures – a temporary benefit that kicked in with the Recovery Act.
Same comment as the first paragraph above.
Infrastructure: Obama would spend approximately $50 billion on infrastructure projects for roads, bridges, airports and ports. The House has talked about spending $70 billion on a similar initiative.
Again, this falls under the category of “option 5” on my flow chart – government incentives to hire more workers. Though in this case it’s likely to be more effective, as projects will begin that otherwise would have gone by the wayside for lack of funds. And there’s no shortage of work needing to be done on our infrastructure. An unanswered question is the time frame over which this $50 billion would be spent. The more it’s spread, the more it waters down the job-creating effect. And whether it should be done at all with deficit spending is another issue.
Energy: He would offer rebates to consumers who retrofit their homes, making changes such as caulking or replacing windows with more energy efficient products. Obama would also expand a stimulus program that gives greater borrowing power to private companies that create manufacturing jobs producing machines, such as wind turbines, that cut down on greenhouse gasses.
This was “option 2” on my flow chart, cutting taxes to boost spending. But it’s done in a very targeted way that is likely to provide at least some temporary boost in employment in industries involved in manufacturing home building products. As such, it’s probably the most meaningful element of the president’s plan.
No doubt it will work. People with homes that are anywhere close to needing windows, furnaces and air conditioners replaced would be foolish not to take the plunge and get a huge discount. I did it myself this year, replacing deteriorating wood windows on my 21-year old home to take advantage of a 30% tax credit. Next year I plan to replace the furnace to use the rest of the unused tax credit, but it sounds like there might be a bigger windfall for me if I wait for this new plan. So Congress better hurry on this one. Otherwise, I’ll actually be delaying my furnace purchase while I wait for this better deal. Gee, did Obama just put a temporary crimp in energy efficiency sales? Quite possibly! And, again, the problem is that this is all unfunded, worsening the country’s fiscal problems.
And all of this talk about creating green jobs with tax incentives has proven to be nothing but talk. Oil and gas prices are still too low to make alternative energy sources viable. I’ve looked at both solar and wind energy for my home and it just doesn’t make economic sense at these prices. Sure, there are a few token projects going on, but nothing serious. The tax incentives would have to be huge to stimulate any meaningful activity in this field.
Safety net: Obama said he wants Congress to extend unemployment benefits and offer more help for the jobless paying for Cobra health insurance. He wants to give seniors and veterans $250 payments and also give money to states to prevent layoffs of teachers, police officers and firefighters.
No new jobs here. Some saved perhaps, although municipalities are reluctant to take advantage of such federal stimulus plans, knowing that they’re kicking the can down the road and setting up a worse fiscal crisis for the following year.
I’d give the president a big “F” for this plan. Once again, he’s passed on doing anything meaningful for the economy by fixing broken trade policy, which he could do with the stroke of a pen. He’s taking the politically correct way out. Worse, he continues to demonstrate a lack of concern for unemployed Americans by continuing the long-standing practice of importing over a half million immigrant workers a year to take jobs away from Americans.
Sorry, Americans, no help here. The hope is that you won’t remember by the time the next election rolls around.