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Yesterday, as scheduled, president Barack Obama submitted his latest plan, the American Jobs Act, to Congress. The president reiterated his contention that the bill contains a number of bipartisan proposals. Yet while that claim may have some merit, it was revealed that the bulk of the revenue necessary to fund this bill — as in $400 billion of the proposed $447 billion in expenditures — will come from a “limit on itemized deductions and certain exemptions on individuals who earn over $200,000 and families who earn over $250,000.” Thus, the president has finally revealed that the idea of having “millionaires and billionaires” pay their fair share was little more than a euphemism for his ongoing class-warfare approach to economics. It is a euphemism aimed at obscuring a daunting reality: the administration has no new ideas to fix the economy.
Thus, we got more of a familiar refrain. “Do we keep tax loopholes for oil companies, or do we put teachers back to work?” Obama asked at the bill’s Rose Garden unveiling. “Should we keep tax breaks for millionaires and billionaires — or should we invest in education and technology and infrastructure, all the things that are going to help us out-innovate and out-educate and out-build other countries in the future?”
The question is rhetorical. Mr. Obama also proposed that $18 billion should be raised by taxing the earnings of investment fund managers as ordinary income instead capital gains. Since capital gains rates are lower, this is essentially another tax increase. Another $40 billion will come from eliminating oil and gas industry tax breaks (tax increase), and recalculating depreciation rates for corporate jet owners will ostensibly raise another $3 billion (tax increase).
What will the revenue be paying for? A total of $130 billion is aimed at state and local governments, broken down into $50 billion for transportation projects; $35 billion for the payrolls of school, police and fire department employees; $30 billion for modernizing public schools and community colleges; and $15 billion to refurbish vacant and foreclosed homes or businesses.
Yet the biggest chunk of expenditures will come from reducing the tax on Social Security and a tax cut for company payrolls. Last December, Congress lowered the tax rate for 2011 from 6.2 percent to 4.2 percent for individuals, while leaving it intact for employers on wages up to $106,800. The president proposes extending the cut for another year and enlarging the reduction to 3.1 percent. In addition, he proposes extending payroll tax cuts to the first $5 million of a company’s payroll, which the White House contends covers 98 percent of companies whose total payrolls fall below that number. The cost of both proposals? $240 billion.
One of the most obvious flaws in the plan was revealed — inadvertently — by David Adkins, executive director of the Council of State Governments. “[With another infusion of revenue] the federal government may be able to play a critical role in helping states close their budget gaps,” Adkins noted. Exactly. And it is exactly such “help” that makes it far easier for states to postpone making the difficult, and often politically unpopular, decisions necessary to get their own fiscal houses in order. Also, because such funding is temporary, programs or other initiatives partially or totally underwritten by the feds would either have to be cancelled, or the states would have come up with the difference in revenue when such funding ends. How does a state raise additional revenue?
Unlike the federal government, which can print money, states are left with the choice of either cutting spending, raising taxes, or a combination of the two.
This reality was revealed when the machinations of the original stimulus plan played themselves out. “States had this one-time money that helped them bridge a difficult period in state finances,” said Todd Haggerty, policy associate at the National Conference of State Legislatures. “Now they have to face the absence of those funds and a whole new set of difficult issues.” Mr. Haggerty made that statement in 2010. Yesterday, Democratic state Sen. John Arthur Smith of New Mexico reiterated that reality, noting that his state faced a $200 million budget gap in 2011 because it ran out of stimulus funding.
Some state governors, notably Republicans, have simply refused to take the funding in the first place. Wisconsin Gov. Scott Walker, Ohio Gov. John Kasich and Florida Gov. Rick Scott, have all rejected stimulus funding aimed at one the president’s pet projects: high-speed rail lines. Furthermore, Scott and Texas Gov. Rick Perry have made it clear they may reject additional stimulus funding because it adds to the national debt. “President Obama’s call for nearly a half-trillion dollars in more government stimulus when America has more than $14 trillion in debt is guided by his mistaken belief that we can spend our way to prosperity,” Perry said.
Democratic governors disagreed. “It’s a no-brainer: Congress should pass the bill. Now,” said California Gov. Jerry Brown. “We need all the help we can get,” said Vermont Gov. Peter Shumlin. “I think it’s pretty much a nonpartisan idea that a modern economy requires modern investments in order to create jobs,” said Maryland Gov. Martin O’Malley.
That political divide was reflected in Washington, D.C. While Republicans were reportedly willing to consider some aspects of the president’s plan, it would appear that “modern investments,” one of the more creative euphemisms for tax increases, are off the table. “It would be fair to say this tax increase on job creators is the kind of proposal both parties have opposed in the past. We remain eager to work together on ways to support job growth, but this proposal doesn’t appear to have been offered in that bipartisan spirit,” said House Speaker John Boehner’s spokesman, Brendan Buck.
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