This House Would Pass the American Jobs Act

The long term unemployed in America are important to the economic recovery. Whilst those who are temporarily unemployed will eventually come back into employment and start contributing to the economy, they will often be offset by those losing work. For the U.S. economy to gain headway, spare capacity must be created in the economy for those who have not been employed for a long period of time. Should the U.S. be able to harness these workers and create extra employment capacity to keep them in employment, then the U.S. economy will see a boost as the number of people gaining work will outnumber those losing work to a more significant level than seen ordinarily in an economic recovery.

The American Jobs Act helps in this area by creating what is known as a “Bridge to Work” program which capitalises on initiatives that many states have put into place in order to deal with long term unemployment. Specifically these programmes help those without jobs take temporary or voluntary work whilst they also pursue on the job training in order to make them more employable in the long run. There is also a $4000 tax credit for employers that hire long-term unemployed workers. Further, prohibitions on discrimination based on length of unemployment will also come into place. As such the American Jobs Act is likely to stimulate the economy through the creation of a bigger and better trained work force.¹

Whilst long term unemployment is an issue within America, it is not an issue to be focused on during a time of economic recovery and potential recession again. In a recession there are significantly more people who suffer from temporary unemployment because businesses that are unable to survive the hardships of the recession often shut down.

This means following a recession there are a large number of skilled workers in the work force who lack jobs. As  recovery gains pace, these workers are re-employed at a greater rate than other workers are made redundant. Given that these people are already skilled and can already make a very significant contribution to the economy, it seems illogical that a bill intended to promote economic recovery should focus on the long-term unemployed at all. Presumably, most people who suffer from long term unemployment will take a few years to acquire the skills needed to meaningfully contribute to the economy. At this point, the economy will likely already be out of recession. This is indicated by the fact that in the latest recovery period, long term unemployment rose presumably because the extra employment capacity in the economy was just being retaken by those who were temporarily unemployed.²

It is more beneficial that the state concentrates entirely on bringing the country out of recession and recovery and into a period of sustainable growth more quickly. Under these circumstances, the state will have more resources to divert to the long term unemployed, as fewer people will require help due to temporary unemployment. The state can then focus on assisting these individuals, so that when the next recession comes state services will be ready to ease the damage.

One of the more divisive problems in America is the increasing inequality between the wealthy and members of other classes. The harms that could, and have resulted from this extend to the Occupy Protests in the tail end of 2011, as well as riots With the rich consistently seeming to get richer despite the poor economic climate, many of the less rich within the American economy feel that the state is playing against them, conferring advantages on those best able to lobby politicians and make large election campaign donations. This is problematic when it is state mechanisms that will enable American’s who lack access to costly universities to better educate and train themselves, thus making them more employable thus allowing them to help push the American economy out of recession.

A popular consensus has emerged amongst America’s middle class, which portrays the recession as an event triggered by the rich, with rhetoric regarding “Greedy Bankers” playing into the public discourse on the ineffectiveness of state regulation of large financial institutions.

The American Jobs Act redresses the balance between the wealthy top tier of American society and its middle and working classes. In doing so, it helps to alter the perception of the rich and their contributions to society.

The burdens currently confronted by America’s middle class are addressed in a number of ways. Firstly, payroll tax, a pay-as-you-earn tax that is withheld from employee’s wages, will be significantly reduced. As such, any families with a large number of working members will be subjected to a much lower tax burden. This would provide a tax cut of around $1,500 to a typical American family.²

Given also the higher tax burden placed on the rich with this tax, and the system that results is likely to be skewed more strongly in favour of working Americans. Further, changes in the taxation system will also be able to sure up any loopholes that have been exploited by the rich to avoid taxes.

Finally, the jobs act redresses problems where the largest subsidies go to things such as charitable giving and mortgage interest – presumably things which are paid by people who need subsidies the least. Caps will be placed on such tax breaks under the act and as such, money will be more likely to go to people who need it more – the poor or unemployed.

In bringing about these changes, better economic circumstances are created for the poor and the balance between rich and poor is likely to become smaller.³

The social problems that have taken root in America result from a number of converging causes. While many individuals may desperately want to contribute to the debate surrounding these problems, attributing the declining performance of the American economy highly visible social divisions is misleading and unproductive.

The division between rich and poor as well as the low taxes on the rich exist because a lower tax burden on the rich promotes innovation within economies. Specifically, it is often the rich that engage in enterprise, be it through their own businesses or as part of large corporations. The lower tax burden on the rich makes taking risks in order to develop new technology more profitable for the people making those risks.

Promotion of enterprise and risk during recessions should be a priority for American policy makers, because it is often new products that drive economic growth by creating new markets which drive demand and also by increasing productivity. As such, an increase on the tax burden for the rich in the American economy is problematic because it hurts this method of recovery. It should also be mentioned that simply lowering the tax burden on the poor is likely to be impossible at this time without significantly increasing a U.S. deficit that has already been downgraded by credit rating agencies. In allowing the deficit to increase further the U.S. would have to pay back significantly more in the future owing to higher interest. This approach to fiscal policy has been heavily criticised by the chairman of Forbes Inc. Steve Forbes.⁴

As such, it is opposition’s opinion that whilst such a change might address issues of social cohesion in the U.S, the cost to the economy from doing so is too great. Further, social cohesion could easily be encouraged through other, less economically harmful measures such as tightening up regulation on banking. Doing so helps the economy and plays against the “Greedy bankers” rhetoric that proposition mentions.

The American Jobs Act helps small businesses and is also set to significantly increase the number of jobs available to people. Small enterprise is particularly important in the creation of jobs because these businesses tend to be start-up businesses. Many start-ups are entrepreneurial in character, and succeed or fail on their ability to identify and exploit new markets. Increasing investment in new and emergency markets spurs the creation of additional jobs within those markets. Thanks to the cuts in payroll tax contained in the Jobs Act, many small businesses will stand to benefit by gaining some of the money paid to the government back. The President’s plan will also eliminate payroll taxes entirely if firms add new workers or increase the wages of their current workers. As such, there will be significant incentives for small businesses to hire more workers.­¹

Cuts to payroll taxes, combined with the other changes planned by the bill, are estimated to create 100,000 jobs a month for the next year, accompanied by a projected 1.25% increase in GDP. Moody’s Analytics is even more optimistic about the likely benefits to the American economy should the act pass, predicting growth rates at 2% and claiming that 1.9 million jobs will be created as a result.⁵

The American Jobs Act may be projected to create a lot of jobs. However, this comes following tax cuts and a fiscal stimulus package in 2009. In the past these measures to help the economy failed, with unemployment remaining stagnant at around 25 million despite the efforts by the government in 2009.

The reason this occurred in 2009 is that despite the stimulus package there was a strong degree of uncertainty within the economy. As such, even though consumers and producers were facing a lower tax burden it became apparent that neither group was willing to take big risks in a highly uncertain economic environment. The possibility of recession was all too apparent, and this affected both business and consumer confidence.

Given the Eurozone crisis at the moment, the situation in 2011 is very similar, with much of the world economy waiting on the outcome in Europe to see whether recession or recovery awaits. Such a climate is not conducive to risk taking on the part of firms. Hiring extra workers, for example, might be a profitable activity, however, it also entails significant risk as the firm has to be able to guarantee that it will get more out of the worker than it ends up paying.

The current state of world markets is not conducive to a stimulus package and it would simply be better to wait out the Eurozone crisis and then deal with the coming problems in an environment that is more confident and that is populated by actors equipped with greater understanding of the direction of the world and American economies.⁶

The long term unemployed in America are important to the economic recovery. Whilst those who are temporarily unemployed will eventually come back into employment and start contributing to the economy, they will often be offset by those losing work. For the U.S. economy to gain headway, spare capacity must be created in the economy for those who have not been employed for a long period of time. Should the U.S. be able to harness these workers and create extra employment capacity to keep them in employment, then the U.S. economy will see a boost as the number of people gaining work will outnumber those losing work to a more significant level than seen ordinarily in an economic recovery.

The American Jobs Act helps in this area by creating what is known as a “Bridge to Work” program which capitalises on initiatives that many states have put into place in order to deal with long term unemployment. Specifically these programmes help those without jobs take temporary or voluntary work whilst they also pursue on the job training in order to make them more employable in the long run. There is also a $4000 tax credit for employers that hire long-term unemployed workers. Further, prohibitions on discrimination based on length of unemployment will also come into place. As such the American Jobs Act is likely to stimulate the economy through the creation of a bigger and better trained work force.¹

Whilst long term unemployment is an issue within America, it is not an issue to be focused on during a time of economic recovery and potential recession again. In a recession there are significantly more people who suffer from temporary unemployment because businesses that are unable to survive the hardships of the recession often shut down.

This means following a recession there are a large number of skilled workers in the work force who lack jobs. As  recovery gains pace, these workers are re-employed at a greater rate than other workers are made redundant. Given that these people are already skilled and can already make a very significant contribution to the economy, it seems illogical that a bill intended to promote economic recovery should focus on the long-term unemployed at all. Presumably, most people who suffer from long term unemployment will take a few years to acquire the skills needed to meaningfully contribute to the economy. At this point, the economy will likely already be out of recession. This is indicated by the fact that in the latest recovery period, long term unemployment rose presumably because the extra employment capacity in the economy was just being retaken by those who were temporarily unemployed.²

It is more beneficial that the state concentrates entirely on bringing the country out of recession and recovery and into a period of sustainable growth more quickly. Under these circumstances, the state will have more resources to divert to the long term unemployed, as fewer people will require help due to temporary unemployment. The state can then focus on assisting these individuals, so that when the next recession comes state services will be ready to ease the damage.

One of the more divisive problems in America is the increasing inequality between the wealthy and members of other classes. The harms that could, and have resulted from this extend to the Occupy Protests in the tail end of 2011, as well as riots With the rich consistently seeming to get richer despite the poor economic climate, many of the less rich within the American economy feel that the state is playing against them, conferring advantages on those best able to lobby politicians and make large election campaign donations. This is problematic when it is state mechanisms that will enable American’s who lack access to costly universities to better educate and train themselves, thus making them more employable thus allowing them to help push the American economy out of recession.

A popular consensus has emerged amongst America’s middle class, which portrays the recession as an event triggered by the rich, with rhetoric regarding “Greedy Bankers” playing into the public discourse on the ineffectiveness of state regulation of large financial institutions.

The American Jobs Act redresses the balance between the wealthy top tier of American society and its middle and working classes. In doing so, it helps to alter the perception of the rich and their contributions to society.

The burdens currently confronted by America’s middle class are addressed in a number of ways. Firstly, payroll tax, a pay-as-you-earn tax that is withheld from employee’s wages, will be significantly reduced. As such, any families with a large number of working members will be subjected to a much lower tax burden. This would provide a tax cut of around $1,500 to a typical American family.²

Given also the higher tax burden placed on the rich with this tax, and the system that results is likely to be skewed more strongly in favour of working Americans. Further, changes in the taxation system will also be able to sure up any loopholes that have been exploited by the rich to avoid taxes.

Finally, the jobs act redresses problems where the largest subsidies go to things such as charitable giving and mortgage interest – presumably things which are paid by people who need subsidies the least. Caps will be placed on such tax breaks under the act and as such, money will be more likely to go to people who need it more – the poor or unemployed.

In bringing about these changes, better economic circumstances are created for the poor and the balance between rich and poor is likely to become smaller.³

The social problems that have taken root in America result from a number of converging causes. While many individuals may desperately want to contribute to the debate surrounding these problems, attributing the declining performance of the American economy highly visible social divisions is misleading and unproductive.

The division between rich and poor as well as the low taxes on the rich exist because a lower tax burden on the rich promotes innovation within economies. Specifically, it is often the rich that engage in enterprise, be it through their own businesses or as part of large corporations. The lower tax burden on the rich makes taking risks in order to develop new technology more profitable for the people making those risks.

Promotion of enterprise and risk during recessions should be a priority for American policy makers, because it is often new products that drive economic growth by creating new markets which drive demand and also by increasing productivity. As such, an increase on the tax burden for the rich in the American economy is problematic because it hurts this method of recovery. It should also be mentioned that simply lowering the tax burden on the poor is likely to be impossible at this time without significantly increasing a U.S. deficit that has already been downgraded by credit rating agencies. In allowing the deficit to increase further the U.S. would have to pay back significantly more in the future owing to higher interest. This approach to fiscal policy has been heavily criticised by the chairman of Forbes Inc. Steve Forbes.⁴

As such, it is opposition’s opinion that whilst such a change might address issues of social cohesion in the U.S, the cost to the economy from doing so is too great. Further, social cohesion could easily be encouraged through other, less economically harmful measures such as tightening up regulation on banking. Doing so helps the economy and plays against the “Greedy bankers” rhetoric that proposition mentions.

The American Jobs Act helps small businesses and is also set to significantly increase the number of jobs available to people. Small enterprise is particularly important in the creation of jobs because these businesses tend to be start-up businesses. Many start-ups are entrepreneurial in character, and succeed or fail on their ability to identify and exploit new markets. Increasing investment in new and emergency markets spurs the creation of additional jobs within those markets. Thanks to the cuts in payroll tax contained in the Jobs Act, many small businesses will stand to benefit by gaining some of the money paid to the government back. The President’s plan will also eliminate payroll taxes entirely if firms add new workers or increase the wages of their current workers. As such, there will be significant incentives for small businesses to hire more workers.­¹

Cuts to payroll taxes, combined with the other changes planned by the bill, are estimated to create 100,000 jobs a month for the next year, accompanied by a projected 1.25% increase in GDP. Moody’s Analytics is even more optimistic about the likely benefits to the American economy should the act pass, predicting growth rates at 2% and claiming that 1.9 million jobs will be created as a result.⁵

The American Jobs Act may be projected to create a lot of jobs. However, this comes following tax cuts and a fiscal stimulus package in 2009. In the past these measures to help the economy failed, with unemployment remaining stagnant at around 25 million despite the efforts by the government in 2009.

The reason this occurred in 2009 is that despite the stimulus package there was a strong degree of uncertainty within the economy. As such, even though consumers and producers were facing a lower tax burden it became apparent that neither group was willing to take big risks in a highly uncertain economic environment. The possibility of recession was all too apparent, and this affected both business and consumer confidence.

Given the Eurozone crisis at the moment, the situation in 2011 is very similar, with much of the world economy waiting on the outcome in Europe to see whether recession or recovery awaits. Such a climate is not conducive to risk taking on the part of firms. Hiring extra workers, for example, might be a profitable activity, however, it also entails significant risk as the firm has to be able to guarantee that it will get more out of the worker than it ends up paying.

The current state of world markets is not conducive to a stimulus package and it would simply be better to wait out the Eurozone crisis and then deal with the coming problems in an environment that is more confident and that is populated by actors equipped with greater understanding of the direction of the world and American economies.⁶

One of the issues with the American Jobs Act is that while it is claimed that it will be deficit neutral this may not actually be the case as the costs are front loaded whereas the revenue is not. The Congressional Budget Office estimates it will be neutral by 2021 but will increase the deficit by $288 billion in 2012,¹¹ meaning there is a lot of scope for mistakes in the revenue increases or even higher interest rates than expected meaning it contributes to the deficit. If it contributes significantly to the deficit then the economic benefit that the jobs act might create could simply be subsumed in greater repayments on bonds in the future by the U.S.

As such, any spending under the jobs act will have to be recouped elsewhere in the American system under taxation. Logically speaking, whilst extra government spending could potentially be more efficient, such sweeping changes that are claimed to cause such a significant amount of benefit to the American economy are almost certain to require extra governmental spending.

This case is enhanced by the fact that, when addressing the affordability of the act, Obama and his administration’s officials  are vague about how the act will be financed. The act states “To ensure that the American Jobs Act is fully paid for, the President will call on the Joint Committee to come up with additional deficit reductions necessary to pay for the Act and still meet its deficit target. The President will, in the coming days, release a detailed plan that will show how we can do that while achieving the additional deficit reduction necessary to meet the President’s broader goal of stabilizing our debt as a share of the economy.”

If this is true, the financing of the act is dependent on a super committee finding the funding available somewhere in the American budget. If they are to significantly increase taxes they will likely find it difficult to pass such action, given how likely Republicans are to resist such an action. As such, implementing this Act is likely to end up cutting into the deficit significantly more.⁹

Even if the American jobs act is not deficit neutral, it will have a significant effect in the future, through spending more in the present to speed the American recovery period and prevent a double dip recession. During the boom period it will be significantly easier to pay any increased deficit back. Further, even if the American credit rating is to be downgraded further, changes in the credit rating are played to be more significant than they actually are. The Japanese for example have had their credit rating downgraded by Moody’s to Aa3, however, bond interest in Japan is 2% at its highest levels on long term Japanese bonds whereas it is 3% in the U.S.⁷

The change in the credit rating of Japan did very little to increase interest on its bonds. The reason is that investors still believe that Japan is a stable market despite its deficit which amounts to 233% of annual economic output. As such, even if the credit rating of the U.S. does get downgraded it is likely to do little in terms of increasing U.S. bond repayments over time. Further, financing the American Jobs Act through a greater deficit could be seen by many rating agencies as a fiscally responsible move and as such would not lead to them downgrading the rating at all.⁸

The American Jobs Act is problematic because one of the main causes of the recession was excessive risk taking in certain businesses. This reckless behaviour was the result of poor regulatory infrastructure – the state and independent agencies were doing too little to monitor banks’ conduct. Whilst some spending from the act is going on the improvement of infrastructure in the form of better checks and balances on businesses such as banks which are critical to the economy, the majority of the spending is instead going on tax breaks. Whilst taking risk and encouraging risk is generally a good thing in recessions, the way in which money is put at risk must be controlled. If it is not controlled well enough then there is a significant chance that such spending could simply lead to another recession because of another crisis in another financial sector.⁹

Alternatively, businesses may opt to place a greater focus on debt repayments. This is what occurred during the Japanese crisis of the 90s. Companies might act in this way because they fear taking risks in such an unpredictable climate. If this is the case then the economic stimulus that the Act is meant to provide simply will not occur in the way that is intended, and much money that could have been spent on infrastructure will be wasted elsewhere.⁹

Whilst the jobs act does not fully cover infrastructure, more acts can be drafted in order to deal with this problem. Further, the financial sector is likely to now be significantly more wary of the problems that initially caused the recession. This is because the collapse of Lehman and the Sub Prime crisis as well as the following recession significantly hurt their businesses. As such, especially so soon after the global banking crisis, such companies are going to be more careful about taking unnecessary risks. Whilst this attitude might decay over time, by the time it has decayed enough that action must be taken, it is likely that America will be out of recession.

Further, it is believed that right now, the general health of the corporate sector is sound. This means that whilst there is the possibility that businesses will opt not to use tax breaks to increase wages and pay debt, it is fairly unlikely. Even if another recession hits, the current strength of the corporate sector is such that it is likely to be able to weather the storm and as such, CEOs are likely to wish to spend windfall that they do get in order to get ahead of the competition for the next boom phase.⁹

While the American Jobs Act gives help to small businesses it does nothing to help proven companies that already have a record of success as is shown by their size. Indeed these companies may even be hit by the revenue raising side of the act. It is often the wealthy- both businesses and individuals- that engage in enterprise and risky expansions into new markets. A lower tax burden on the rich makes taking risks in order to develop new technology more profitable and more appealing.

Promoting private enterprise and risk taking is a key strategy in resolving recessions. It is often new products that drive economic growth by creating new markets, which drive demand. An increase in the tax burden of America’s wealthiest citizens and corporations is problematic. It impedes this growth and innovation-led recovery strategies.

It is important to note that the risk the American economy needs to promote is risk that is well regulated and, further, is risk in non-critical and emerging industries. As such this point is distinct from the second point of opposition and must be presented as so, otherwise, it risks a misunderstanding with judges.¹⁰

Whilst successful individuals may be confronted with an increased tax bill, the American Jobs Act also significantly reduces taxes on businesses. This is especially important with respect to innovative risk as it is businesses, not individuals, which bear the main brunt of risk following innovation.

As such, it is reasonable to assume that the effect of higher tax on the rich will often be negated, with respect to innovation by the lower tax on businesses.¹