President Barack Obama’s call Tuesday to spend much of the $200 billion in “extra” bank bailout funds on job creation efforts embodies Democrats’ strategy to make a second economic stimulus more palatable to wary taxpayers.
In a speech at the center-left Brookings Institution, Obama put no price tag on a combination of small business, infrastructure and clean energy spending he proposed as mechanisms to replace lost jobs in an era of 10 percent unemployment.
The plan drew immediate criticism from Republicans, who said the money should go toward paying down the deficit.
House Minority Leader John Boehner, R-Ohio, painted the plan as deceptive, saying Obama “won’t call it another ‘stimulus’ because doing so would serve as an admission that the trillion-dollar ‘stimulus’ hasn’t delivered, but that’s exactly what this is.”
Democratic congressional leaders estimated that a jobs bill, which could pass early next year, would cost $75 billion to $150 billion, with more spending to follow. “These are all figures being talked about,” said House Majority Leader Steny Hoyer, D-Md.
Many economists say that additional government intervention is needed to jump-start hiring, especially among small businesses, as the economy creeps tentatively out of a deep recession that Obama said has cost 7 million jobs.
However, with Americans turned off by bailouts and increased deficit spending, unconvinced about the merits of the $787 billion stimulus that passed earlier this year and worried about more spending on the war in Afghanistan and a health care expansion, Democrats have a tough sell to the Republican minority on Capitol Hill and to voters, who will decide next year’s congressional elections.
“The bottom line is that these measures to stimulate small business in particular are critical in order to have any hope at all of getting the job market turned around in 2010,” Brian Bethune, an economist with forecaster IHS Global Insight, wrote in a note to investors Tuesday.
However, the chief economist for the National Federation of Independent Business, which represents smaller companies, said tax credits might fall short of creating jobs.
“Nobody is going to hire a $30,000 worker for a $3,000 tax break,” William Dunkelberg said. Talk about a tax credit instead may delay hiring until Congress acts, he said. “I’ll say, ‘Wait … if I hire later I will get the tax break.”’
Obama faces unique challenges given the depth and length of this recession.
Past downturns largely were tied to the ebb and flow of the business cycle. When the economy contracted, consumers and businesses could run up debt to make it through the downturn.
However, today’s recession followed a shock to the global financial system, and while the credit markets are showing signs of life, they remain significantly impaired. That means businesses can’t borrow easily, and banks are reducing the amount of credit they extend.
Obama took care Tuesday not to pitch his plans as a second stimulus that would put the nation deeper in the red.
Instead, he made the case that an expected $200 billion above what was forecast to be repaid from last year’s Troubled Asset Relief Program represents pre-authorized money that can be spent to put more ordinary Americans back to work in the short term in ways that can pay long-term dividends.
New estimates show that TARP should cost taxpayers $141 billion over a decade, not an earlier estimate of $341 billion. That’s partly thanks to banks moving more quickly than expected to pay back the money in order to get out of tighter federal regulations.
Obama also called for another $50 billion for infrastructure projects such as roads and bridges.
“We think that’s exactly the right way to put people back to work in a field that absolutely needs it,” said Ken Simonson, the chief economist for the Associated General Contractors of America. He said that 1.8 million construction jobs had been lost since the recession started in December 2007.
Obama also called for tax credits for new hires by small business and for eliminating the tax on any of their capital gains next year; an accelerated depreciation of their equipment and other steps to help them write off their debts or expenses more quickly; and waiving fees and increasing guarantees for Small Business Administration loans.
Obama wants more consumer rebate programs for home weatherization and related energy-efficient retrofitting, extensions of unemployment insurance, health insurance for the unemployed and aid for senior citizens and veterans.
Sen. Richard Burr, R-N.C., whose state is home to Charlotte-based Bank of America, which received TARP assistance, said Obama was “out of touch” and that if the first stimulus plan had been a success, unemployment wouldn’t be at 10 percent.
With home sales still in a deep freeze and consumers on the sidelines, economists think that much of the economic growth right now is due to the stimulus spending.
The problem, they warn, is that the effects of the stimulus will decline gradually over the next 12 months, and unless businesses pick up their investment and hiring, the stimulus could wear off with unemployment still near 10 percent. If the economy grows at a sluggish pace, it won’t knock down the jobless numbers, and the economy could slip back into recession with an uncomfortably high unemployment rate.
Obama said in his speech Tuesday that there were few federal programs “less loved or more necessary” than TARP, but that the $200 billion freed up “gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street.”
Economists said that the president was vague on the details, however, including how much of the money should go directly toward reducing the deficit.
Said Bethune: “Effectively, the president has kicked the ball into Congress’ court in order to work out the details.”
(c) 2009, McClatchy-Tribune Information Services.