The American Jobs Act of 2011: provisions and economic impact

Jobs Act

American Jobs Act

The American Jobs Act of 2011

The American Jobs Act

This paper advocates passage of the American Jobs Act of 2011. Two years after the Great Recession of 2007-2009 ended, unemployment continues at near record highs. As of September 2011, according to the Bureau of Labor Statistics, the unemployment rate held at 9.1%, with the number of unemployed persons at 14.0 million. The unemployment rates for adult men (8.8%), adult women (8.1%), teenagers (24.6%), whites (8.0%), blacks (16.0%), and Hispanics (11.3%) were essentially unchanged for September. The number of long-term unemployed, those who were jobless for 27 weeks or longer, was 6.2 million individuals, accounting for 44.4% of the unemployed. The number of individuals employed part-time for economic reasons, also referred to as involuntary part-time workers, rose to 9.3 million in September. These persons worked part-time because their hours had been cut back, or because they were unable to find a full-time job (Bureau of Labor Statistics, pars. 1-5).

About 2.5 million people were defined as marginally attached to the labor force in September, about the same number as reported a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. Among the marginally attached, there were 1.0 million discouraged workers, down by 172,000 from one year earlier (Bureau of Labor Statistics, par. 6).

With these grim statistics as a backdrop, President Obama announced the proposed American Jobs Act of 2011, legislation designed to boost hiring and to help the ailing economy. This essay examines the key provisions of the Jobs Act. The Act provides a tax cut for small businesses that is designed to help them increase hiring and expand right away. There is an additional tax cut for any business that hires employees or increases wages. The Act also cuts the payroll tax in half, saving typical families an average of $1,500 per year (Obama, par.4).

The Jobs Act puts people back to work, including teachers who were laid off by state budget cuts, along with first responders and veterans returning from Iraq and Afghanistan, and construction workers. The Act puts them to work repairing U.S. infrastructure, crumbling bridges, roads, and more than 35,000 schools, as well as hundreds of thousands of foreclosed homes and businesses across the country (Obama, par. 5).

The Jobs Act also helps out-of-work Americans by extending unemployment benefits which will allow them to support their families while they look for work. The Jobs Act also helps to reform the system with training programs and job-seeking assistance to help the long-term unemployed. The proposed legislation also bans employers from discriminating against the unemployed when hiring, and also provides a new tax credit to those employers hiring workers who have been out of work for more than six months. The Act expands job opportunities for hundreds of thousands of low-income youth and adults through a Pathways Back to Work Fund that supports summer and year round jobs. It also provides innovative new job training programs to help low-income workers connect to jobs quickly along with programs to encourage employers to hire disadvantaged workers (Obama, par. 7).

Another feature of the Jobs Act is that the proposed legislation is fully paid for by offsets to close corporate tax loopholes and by requiring America's wealthiest individuals to pay their fair share to cover the costs of the measure. The Act also increases the deficit reduction target for the Joint Committee by the amount of the jobs package cost and specifying that if the committee reaches the higher target, then their measures would replace and turn off specific offsets of the Jobs Act (Obama, par. 8).

To summarize, the Act includes $447 billion over ten years to pay for temporary stimulus spending, new job training programs, unemployment insurance and, and temporary tax reductions. To offset the cost of the legislation, the bill includes an estimated $467 billion in tax increases and spending cuts to take place on a more long-term schedule once the economy recovers. The bill also includes a payroll tax cut for employees and employers, and offers a tax credit to businesses that hire individuals who have been unemployed for more than six months. The Act also focuses on shovel-ready infrastructure projects like roads, railways, waterways, ports, and airports to modernize America. The proposed legislation includes more tax cuts and tax credits than it does stimulus spending, in an approximate ratio of 60-40 (Debatepedia, pr.1).

3. Why the Jobs Act Should Be Passed

The single most damning criticism of the Jobs Act is that it will not create enough jobs. This objection is almost certainly correct. However it is not at all clear that this administration could pass a larger stimulus package; given the political realities then, this proposed bill is as good as it gets, and should therefore be supported. Even with Senate Republicans recently blocking action on the bill, Jobs Act supporters continue to fight for its passage.

Boushey and Dechter argue that past experience proves that infrastructure investments create private sector jobs. As of March 2011, the Recovery and Reinvestment Act of 2009 created or saved 1.1 million construction jobs and 400,000 manufacturing jobs, almost all of them in the private sector. According to the Education Department, more than 400,000 teachers kept their jobs due to direct state aid infusion in the Recovery Act (par.7).

Studies by academic, private-sector, and nonpartisan government organizations show the positive effects of infrastructure and transportation investment on private sector employment. Modernizing infrastructure lowers the cost of doing business, such as the cost of transporting goods; this is in addition to creating jobs. Why does infrastructure spending create jobs so effectively? Upgrading roads, bridges, schools, airports and other infrastructure investment puts people to work earning good, middle-class incomes, thereby expanding the consumer base for business (Boushey and Dechter, pars. 8-9). When construction workers use their paychecks to pay the rent or mortgage, buy groceries, take their children to the doctor, or for any other type of household spending, these activities generate sales for businesses. These sales in turn help create and maintain jobs for workers throughout the rest of the economy (Costa and Hersh, par. 5).

There is even evidence of bipartisan support for the Jobs Act and its promise of creating jobs. Investing in infrastructure has historically had bipartisan support because it boosts productivity for American businesses at the same time that it creates jobs. This argument explains why both AFL-CIO President Richard Trumka and U.S. Chamber of Commerce President Thomas Donohue joined hands to say "We hope that Democrats and Republicans in Congress will also join together to build American infrastructure" (qtd. In Boushey and Dechter, par. 10).

Supporters also point to evidence that cutting payroll taxes to stimulate hiring and consumer spending is effective. The Jobs Act cuts payroll taxes in half for the first $5 million in wages, and eliminates payroll taxes entirely for new workers or raised salaries. The bill also puts more money into the pockets of 160 million American workers, by providing an extra $1,500 to the typical American household. According to Zandi, Moody's chief economist, the $174 billion tax break going to American workers as a consequence of the Jobs Act would generate about $222 billion of economic activity. Based on recent experience, the employer-side payroll tax holiday will also have a stimulative effect, generating $52.5 billion in additional economic activity (Boushey and Dechter, pars. 11-12).

In 2010 there was evidence of bipartisan support in Congress for employer-side payroll tax cuts similar to those proposed by the Jobs Act. Michele Bachmann (R-MN) and Jeb Hensarling (R-TX) co-sponsored legislation to halve employer and employee-side payroll tax rates. Likewise, the right-leaning National Federation of Independent Businesses voiced support for payroll tax holidays (Boushey and Dechter, par. 13).

There is little disagreement that the U.S. economy and American workers need help; the only question is what form that assistance will take. The American Jobs Act is a jobs-creation package that assembles strategies proven to be successful in the past to immediately create jobs at a time when the country suffers from persistently high unemployment. The proposed legislation has been vetted and approved by independent economic forecasters, and its policies have been endorsed by both political parties. Washington lawmakers need to work together to put the economy back on the road to sound recovery by using the programs and policies of the Jobs Act. Bill Gross, founder of the world's largest bond fund, sums it up: "You've got to create a demand for labor. The private sector is not going to do it" (Boushey and Dechter, pars. 16-18).