Duffka School of Economics

Highlights of the President's Economic Plan

Payroll tax cut from 6.2% to 3.1% for workers in 2012, up from a 2% reduction this year.
Cost: $175 billion.
Payroll tax cut from 6.2% to 3.1% for employers and eliminated for qualifying new hires in 2012, plus 100% expensing for new investments.
Cost: $70 billion.
Infrastructure investments, including modernizing schools and rehabbing vacant homes, and funding for states to rehire teachers and first responders.
Cost: $140 billion.
Extending unemployment insurance and new programs for jobless.
Cost: $62 billion.
TOTAL: $447 BILLION

Last night President Obama took to the national and international stage with a $400 billion + jobs bill.  A little bit more than half of the bill included either continuation of reduced taxes or new tax reductions.  

Approximately, $230 billion would be an extension of the payroll tax cut which is a split tax between the employer and the employee.  The standard level of payroll tax is 6.2% of every dollar earned by the employee and 6.2% of every dollar spent on employees.  With this reduction employees will have some extra money to spend (roughly $1,000 for the median income family) and businesses will also have some money to spend.  Since Americans are spending roughly 95% of their income this "can" provide a boost to a scared economy.

The president also looks to increase unemployment benefits to $62 billion through 2012 to alleviate long-term joblessness.  People having more money to spend and maintain their current lifestyle can help the economy as well.

Another piece of the proposal was to spend $140 on infrastructure and aid to the states.  Last months jobs report listed "0" net gains in employment.  The private sector actually added jobs but the government, at all levels, shed as many jobs to create a net effect of zero.

At this point, anything can help.  This is obviously a short term stimulus that some will argue is too small or too large.  Of course the extra spending will create an even larger short term deficit and add to the ballooning debt, but without short term tough choices now we could be headed for the dreaded double-dip...and not chips Seinfeld fans.

The Economist "A Call to Action" 
WSJ "President Unveils Bid to Spur Growth" 

Here is the word cloud from last nights discussion.