Obama’s American Jobs Act: What’s Hot And What’s Not?

A week after the U.S. jobs report printed a big fat zero, President Obama unveiled the much-awaited American Jobs Act. Let’s take a closer look at his proposals to find out whether they can get the troubled labor market back on its feet.

First up on the American Jobs Act is Obama’s plan to implement tax cuts for small businesses. This would involve cutting in half the taxes paid by businesses on their first 5 million USD in payroll. This would benefit most American companies since roughly 98% of firms have payrolls below 5 million USD. Aside from that, firms that increase their payroll either by adding new workers or increasing the salary of their current workers will enjoy a complete payroll tax holiday.

Obama also wants to encourage more Americans to return to the workforce. He plans to do this by giving tax credits to companies that hire unemployed veterans and by preventing layoffs of teachers, cops, and firefighters. He also laid out his plans to rebuild and modernize America’s infrastructures, effectively resulting in hiring more workers.

Another part of the bill is Obama’s proposal to reform unemployment insurance. He plans to allow states to use unemployment insurance funds for programs such as work-sharing, voluntary on-the-job training, and entrepreneurship opportunities, and subsidized employment for the youth. On top of all those, he wants to expand the payroll tax cut implemented last year to 2012.

However, despite these awesome proposals, there are still those who remain unimpressed.

Perhaps the biggest flaw that naysayers have pointed out is that it’s nothing more than a short-term plan. They criticize the Jobs Act for not addressing the important issues that hamper economic growth. Specifically, it doesn’t say much about reviving the housing sector, nor does it present ways for the U.S. to cope with Europe’s financial crisis.

There’s also the hefty price tag that comes along with the stimulus plan which amounts to a whopping 447 billion USD. It’s no secret that the U.S. has a burgeoning budget deficit and some analysts are worried that it may take the Treasury Department about ten years to earn all that money. Heck, there are even those who say that the plan may lead to another debt ceiling increase!

But of course, President Obama is smart enough not to let that happen. After all, he insisted a few months ago that the Treasury should stop hiking the debt ceiling. So where does he plan to get all that money from?

Well, let’s just say that Mr. President plans to make the big ballers fund the jobs plan. By clamping down on the tax breaks of individuals earning more than 250,000 USD per year, oil companies, and corporate jet owners, the government hopes that it could save up to over 400 billion USD.

Taxes on profits of private equity executives, hedge fund managers, and property investors will also be implemented to generate revenue and cover the remainder of the expenses.

To be perfectly honest, I’m not entirely head over heels for Obama’s plan. Sure, according to estimates, the Jobs Act would boost GDP by 1.3% in 2012 and would translate to 1.3 million people getting jobs. However, come 2013, it would only add a measly 0.2% to economic growth.

Looking at the glass half full rather than half empty though, we have to acknowledge that it is a start. After all, there isn’t a fast and fail-proof way to reinvigorate a struggling economy. Who knows, President Obama’s plan may just do the trick and get the labor market back on track.