WASHINGTON — Even if Congress heeds President Barack Obama’s demands to “pass this bill right away” and enacts his jobs and tax plan in its entirety, the unemployment rate probably would not drop noticeably for at least three more years.
Why? Because the 1.9 million new jobs the White House says the bill would produce in 2012 falls short of what’s needed to put the economy back on track to return to pre-recession jobless levels of under 6 percent, from today’s rate of 9.1 percent.
That’s how deep the jobs hole is. The persistent weakness of the U.S. economy has left 14 million people unemployed and more than 25 million unable to find full-time work. Republicans picked up on this problem, and sounded a familiar theme that federal regulations hamper job creation.
“I’ve asked employers what would it take to help them add more jobs. No matter the size of their business or the size of their work force, they tell me that Washington must stop imposing crushing new regulations,” said Sen. Susan Collins of Maine.
American companies need pro-growth policies that will end the uncertainty burdening the economy and revive hiring and investment, according to Collins.
“We need a timeout from excessive regulations so that America can get back to work,” she said, offering examples of a walnut company warned not to claim health benefits of its product to new EPA regulations over boilers. While noting government’s legitimate role in making rules, she pointed out that federal agencies currently have 4,200 new rules under consideration, with 845 affecting small businesses — “the engines of job creation.”
Economists of all stripes largely agree that it will be a long, hard road no matter what Congress does. Right now, the Republicans who run the House and the Democrats who lead the Senate aren’t finding much common ground.
Obama estimates his American Jobs Act would lower unemployment by just a single percentage point by next year, to just over 8 percent, heading into the 2012 presidential election.
Burned before by making overly optimistic job-creation predictions, the White House turned to prominent outside economists to crunch the numbers.
The projection of 1.9 million new jobs, a 1 percentage point drop in the unemployment rate and a 2 percentage point increase in the gross domestic product under Obama’s plan came from Mark Zandi, chief economist of Moody’s Analytics.
But Zandi said in an interview his forecast also is based on an assumption that “the president’s entire package is passed by the end of the year,” a slim prospect given the current divided leadership in Congress, and that there are no other budgetary policy changes.
“I assumed that it would be paid for,” Zandi said. “I didn’t know when I did that simulation how the president proposed to pay for it.”
Since then, Obama has said he would pay for his $447 billion package with permanent income tax increases of about $150 billion a year, mostly on wealthy individuals and corporations, in addition to spending cuts. That’s drawn criticism from Republicans, who say any tax increases could further stall the fragile recovery.
Zandi, who has advised both Republican and Democratic lawmakers, said he’s still sticking with his forecast, mainly because the stimulus in the plan, including a temporary reduction in Social Security taxes for both employees and employers and infrastructure spending, would come in 2012 and be paid for later.
But there is one feature Obama doesn’t emphasize.
Zandi said his job-creation figure only applies to 2012.
“Beginning in 2013, and certainly into 2014, the plan is a drag on the economy because the stimulus starts fading away,” he said. “So by 2015, the economy is in the same place as now, as if there were no jobs package.”