Obama's best jobs plan might be status quo

[September 08, 2011]  WASHINGTON (AP) -- First, do no harm. Economists say the most important part of the jobs plan President Barack Obama will unveil Thursday night is the renewal of two measures already in place -- a cut in Social Security taxes and emergency aid for the unemployed.

His new proposals, like spending more for transportation projects and cutting taxes for companies that hire the unemployed, probably wouldn't add many jobs, they say. Not soon, anyway.

"These are not bold, new, big programs," says Nariman Behravesh, chief economist with IHS Global Insight. "You put everything together, it's going to be pretty small."

The job market needs big help. In August, the economy generated zero job growth. And the unemployment rate is 9.1 percent, a level more typical for a recession than for a recovery in its third year.

For Obama, who also faces sinking approval ratings as he goes before a joint session of Congress and on national TV, the options are limited. Congress must approve any new measures, and congressional Republicans oppose new spending.

"Anything that would be of a big enough size to really help the labor market is going to have trouble getting through Congress," says Michael Hanson, senior economist at Bank of America Merrill Lynch. "And anything that can get through Congress will be too small to be much help."

Federal Reserve Chairman Ben Bernanke, International Monetary Fund chief Christine Lagarde and other economists have urged Congress to do more to help job growth and the economy over the next year or two -- and worry about cutting spending later.

Economist Barry Bosworth of the Brookings Institution, for example, says the government needs to spend $700 billion to $800 billion a year to generate healthy job growth.

Obama's plan was still being shaped Wednesday. Here are the ideas the White House is considering:

Extending, for one year, a cut in the payroll tax that supports Social Security. The cut, part of a deal struck last December by Obama and Republicans, reduces the tax to 4.2 percent from 6.2 percent on the first $106,800 a person makes. That amounts to $1,000 a year for someone earning $50,000.

Keeping the tax cut would cost the government $110 billion to $115 billion. The research firm Macroeconomic Advisers estimates it would support 400,000 jobs in 2012. The theory: More money in people's pockets increases demand for goods and services across the economy, and businesses have to have enough workers to keep up.

The problem is that keeping the tax cut doesn't create jobs where they didn't exist before.

"It's in the `Do no harm' camp," says economist Heidi Shierholz of the Economic Policy Institute. "We have that support now, so it's not going to gain us anything. It's just a matter of: If we let it go, we lose."

Critics of this approach also point out that the extra money in people's paychecks this year has mostly been eaten up by higher gasoline prices.

"Continuing the payroll tax cut is tempting," says John Makin, economist at the American Enterprise Institute. "But I have to ask, if I look at the results, is it worth an increase in the deficit and debt?"

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Keeping emergency unemployment benefits for another year. Unemployment checks put money in the hands of people who are likely to spend it immediately, helping businesses and making them more likely to hire.

Macroeconomic Advisers estimates that another year of emergency unemployment benefits would support 200,000 jobs in 2012.

Critics say unemployment benefits discourage some people from aggressively seeking work. Researchers at the Federal Reserve Bank of San Francisco have concluded that unemployment benefits keep the unemployment rate about 0.4 percentage point higher than it would be otherwise.

The unemployed used to get 26 weeks of benefits. During the recession, Congress extended it to as much as 99 weeks -- almost two years -- in states with high unemployment.

Obama may back a national version of a Georgia program that encourages businesses to provide on-the-job training for people receiving unemployment benefits. About a third of the time, the workers wind up getting hired full-time.

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Offering tax incentives to businesses to hire the unemployed. Under consideration is an expanded version of a law passed last year that encouraged companies to hire the unemployed. The law exempted employers from paying their share of the Social Security tax when they created jobs for those unemployed for at least two months.

But economists say the law didn't boost hiring much.

Rajeev Dhawan, director of Georgia State University's economic forecasting center, says the tax break might encourage employers to hire workers they didn't need, which would be inefficient. Or, he says, it could give them a tax break for something they were going to do anyway.

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Spending more on public works. Obama's proposals will probably include spending on roads and other infrastructure programs and add to the deficit. And he's expected to call for as much as $50 billion for school construction and renovation.

But public works programs can take years to get started and create jobs.

"Infrastructure spending cannot jump-start near-term hiring unless ramped up at a pace and a scale that, outside of wartime, would be unprecedented," Macroeconomic Advisers concluded in a report.

Some businesses would welcome it anyway.

Dyke Messenger, CEO of a construction equipment firm called PowerCurbers in Salisbury, N.C., says new infrastructure spending could help his business -- and embolden him to hire more people. He employs 85 now.

He says his customers -- construction companies -- won't order more of his machines "until they can see a steady supply of work ahead of them."

"I'm not going to hire somebody unless I'm absolutely sure I've got work for them, period," Messenger says.

[Associated Press; By PAUL WISEMAN]

Associated Press writers Daniel Wagner, Marcy Gordon and Jim Kuhnhenn in Washington, Christopher Leonard in St. Louis and Matthew Craft in New York contributed to this report.

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