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American Jobs Act Worth Nearly $450 Billion

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Obama noted that the election is only 14 months away before stating that he intends to take the message of his bill “to every corner of the country.” (Photo: Ben Shafer)
Obama noted that the election is only 14 months away before stating that he intends to take the message of his bill “to every corner of the country.” (Photo: Ben Shafer)

ECONOMY

  • American Jobs Act to create 1.9 million jobs, lower unemployment by 1%
  • Employed to receive additional take-home pay
  • Plan to cut social security taxes to 3.1%, senior citizens concerned

US President Obama is proposing a new $450 billion job creation package that includes tax cuts and project funding. The purpose of the American Jobs Act is to employ those who are jobless, while giving those who are working more money.

With lower taxes for employers and employees, Obama hopes people will spend more, thus boosting business for those seeking to employ new talent. US unemployment has remained at over 9% for more than two years. If enacted, the plan is expected to produce 1.9 million jobs and reduce unemployment by over 1%.

A core proposal of the act involves handing roughly $85 billion to local and state governments to keep teachers and emergency services workers employed. An estimated 280,000 teachers are expected to maintain their jobs as a direct result of this bill.

To target long-term unemployment, Obama wants to grant states the right to pay unemployment benefits to those who have been unemployed for over six months while they undergo job training at no cost to the employer for up to eight weeks. States will also be allowed to use unemployment-insurance funds to compensate for lost wages by those who experienced hour cut backs due to the threat of a layoff and for senior citizens who have accepted a lower-paying job after a layoff.

To aid in the employment of construction workers, $105 billion of the proposed package will be used for infrastructure projects, including transportation upgrades, school modernization and vacant property refurbishment. Employers who hire the long-term unemployed will obtain additional tax credits ranging from $4,000 to $9,600.

The plan's centerpiece is a cut in Social Security taxes to 3.1% for workers and businesses, applicable to the first $5 million of their payroll. According to the White House, roughly 98% of firms have payrolls below the $5 million limit, with payroll tax cuts expected to save employees a total of $175 billion and employers $65 billion next year.

Translated, this means a worker who makes more than $50,000 a year is expected to obtain an additional $1,550 in take-home pay, while those making over $100,000 a year will get more than $3,000 added to their paychecks due to payroll tax cuts.

Proposal Problems

Obama emphasized during a joint Congressional session the urgency of the bill's quick passage, and although politicians from both sides are considering Obama's plan, some are unsatisfied by the proposal.

House Majority Leader Eric Cantor said to Bloomberg that although he is a critic of Obama, this bill may provide some common ground for things like tax reductions for small businesses.

Michigan Representative Bill Huizenga is less optimistic: “I am not sure that a payroll tax holiday is really going to spur the economy.” Utah Senator Orrin Hatch compared this new bill to prior “failed policies” when speaking to CBS.

Many Republicans are accusing Obama of using this bill to promote himself in next year's election. Vice President Joe Biden is quoted by CBS News as saying that if rivals are to criticize the bill, they should come up with “a better idea.” Obama noted that the election is only 14 months away before stating that he intends to take the message of his bill “to every corner of the country.”

Seniors' groups are concerned about the reduction in payroll taxes, which could threaten their disability or retirement.

Max Richtman, CEO of the National committee to Preserve Social Security and Medicare said in a press interview: “This proposal to extend and expand the payroll tax cut threatens Social Security's independence by forcing the program to compete for limited federal dollars from general revenues.” The White House claims Social Security will be reimbursed for lost revenue.

Key Statistics – US Job Market August 2011 (source: US Bureau of Labor Statistics)

  • Unemployment in August has seen little change since April, with over 14 million unemployed, or 9.1% of the overall workforce. The long-term unemployment rate also experienced little change, accounting for roughly 43% of the unemployed.
  • Adult women have a slightly better unemployment rate than men, with 8% compared to 8.9% respectively. Of the major work groups, teenagers had the highest rate of unemployment with 25.4%.
  • Those who are working part time or are marginally attached to the labor force have increased by 400,000 and 200,000, respectively, due to the bad economy. Among those who are marginally attached, discouraged workers are 133,000 fewer in number than a year earlier.

By Nicole Manuel for
Nicole Manuel is a freelance economics, finance and blog writer with a degree in economics and over two years of experience.

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