Editorial: Obama should do more to boost jobs

Editorial: Obama should do more to boost jobs
Copyright The Financial Times Limited 2010
Published: September 7 2010 20:39 | Last updated: September 7 2010 20:39
http://www.ft.com/cms/s/0/09c5ac40-bab2-11df-b73d-00144feab49a.html


President Obama’s speech to a union crowd on Labour Day was an election-campaign event, more about politics than economics. He stirred his audience with a paean to organised labour, and fumed about the negativism of his Republican opponents: “They talk about me like a dog,” he said. He did call for $50bn of new spending on infrastructure, but spread over many years and “fully paid for” (how was not explained). This was not a stimulus proposal, and its chance of Congressional approval is anyway zero.

In a speech planned for Wednesday the president is expected to call for new investment tax credits, including the permanent extension of tax reliefs for research and development. Again, it seems, there will be no new stimulus: the cost will be met by closing so-called loopholes in corporate taxes. The very word “stimulus” appears to be forbidden.

On substance, the White House has surrendered. It is concentrating on energising its supporters ahead of the midterm elections and putting Republicans on the spot – daring them to oppose business tax cuts which (on its own analysis) are not tax cuts in the aggregate at all.

This is bad news for the US economy. With the recovery stalling, further stimulus is needed, and with long-term interest rates and inflation expectations at rock bottom, the US can afford it.

Recognising the constraints imposed by an irresponsible and unappeasable opposition, which scents a big win in November, the White House should adopt a different approach. It should propose a temporary cut in payroll taxes, and an extension until 2013 of the Bush tax cuts, due to expire at the end of this year. A payroll tax holiday, especially if linked to net job creation, is a powerful employment-boosting measure. Depending on the details, it would be costly: upwards of $200bn. But the economy needs it and the US fiscal position, unlike that of many other countries, can stand it.

The ideal policy from a cost-effectiveness point of view, would be to let the Bush tax cuts for high-income households expire on schedule while retaining those for the great majority of households. Politically, however, this includes a tax increase and gives ammunition to Republicans. Extending all the tax cuts and combining this with a payroll tax holiday would be a difficult proposal for them to oppose. Best of all, whether you used the dreaded word or not, it would be the meaningful further stimulus that the economy badly needs.