President Obama has sent a letter to Speaker Boehner and Senate Majority Leader Harry Reid requesting an opportunity to address a Joint Session of Congress on Wednesday, September 7. The speech will focus on job creation, a matter of crucial importance for the President in the 2012 election. Reid is more than happy to oblige to the request, and while Boehner may not be happy about the timing (the speech is scheduled at the same time as the Republican presidential debate) he will have to accept at the risk of being seen as an obstruction to job creation. [Update: Speaker Boehner has requested President Obama move the speech back one day to Thursday, September 8.] President Obama will get an opportunity to present his ideas to the Congress and, more importantly, the American people. However, the larger question is whether any of these proposals will actually pass through this Congress. Below is an outline of some of the proposals the President likely will push for in his speech.
Payroll Tax Cut Extension
Most Americans have been enjoying the benefits of a tax cut in 2011, though few may know it. As part of the budget compromise reached between President Obama and the Republicans in Congress last December the payroll tax was cut by 2%. For an American who earns $50,000 this year that pay cut has meant an additional $1,000 in income. Many are unaware of this cut because it was implemented by simply lowering the amount that is deducted from paychecks. Americans saw their paychecks increase last January, but many may not have noticed or attributed the increase to other factors. The bad news is that this tax cut is due to expire starting in 2011, meaning most Americans will see a smaller paycheck if Congress does nothing.
The payroll tax cut ultimately puts more money in the pockets of consumers, which helps to drive economic growth and job creation. If nearly every American experiences a 2% pay cut next January it could cause a restriction in consumer spending, and further risk the already fledgling economic recovery.
Over the past few months President Obama has frequently urged the Congress to extend this payroll tax cut through 2012, but his calls have rejected by Republicans. Republicans want any future tax cuts to be part of a larger “tax reform” package that would likely include an extension of the Bush tax cuts for the rich. On September 7, or some time thereafter, President Obama will get a chance to make his case for the payroll tax cut extension alone, but the GOP will need to feel significantly more pressure before bringing the payroll tax cut up for an extension. If Speaker Boehner refuses to bring the proposal up for a vote it has zero chance of passage.
Unemployment Benefits Extension
A number of Americans are still struggling to find a job, as there is just one job in the market for every five job seekers. The long-term unemployed face an even higher hurdle in finding a job, as employers shy away from those that did not recently hold a job. Many of the jobless have already had their unemployment benefits run out, and millions more are expected to lose benefits in the coming months. The loss of unemployment benefits serves as a further drain on the economy, as the jobless spend less as a result. A recent study found that jobless benefits were the number one way to generate new job growth, as the recipients of such aid tended to spend more of what they received.
President Obama will push for an extension of benefits for many Americans, but Republicans have not been willing to pass such proposals in the past and it is hard to imagine them changing their mind following the President’s speech next Wednesday.
Relief for Homeowners
A number of homeowners are still “underwater” in that they owe more on their mortgage loan than their home is actually worth. Many of these homeowners are unable to refinance their mortgage because they cannot get their home appraised at the value of the loan. President Obama may advocate for a federal program which would allow all homeowner to refinance already-existing mortgages at a lower interest rate.
If these homeowners were allowed to refinance it would free up some of their money which they could then use towards principal on the loan which would theoretically help the housing market. In the alternative, these homeowners could use the extra money to buy more products or pay off other debt obligations.
The President will likely advocate for a new investment in the country’s infrastructure, including repairing schools through a program called FAST (Fix America’s School Today). This the kind of job creation Democrats favor, which will make it the least palatable to Republicans and the least likely to pass through the House. An investment in infrastructure would theoretically help job creation in two ways. First, through a direct investment in projects a large number of construction jobs would be created. Those construction workers would presumably spend much of their paychecks, leading to further economic growth and more jobs.
The White House is trying to avoid using the word “stimulus” in reference to these projects, but expect Republicans to use that term a lot given its negative connotation from 2009. It is hard to see how the President or Democrats get a infrastructure investment program passed unless the Republicans are given something in exchange (i.e. offsetting spending cuts or tax cuts for the rich).