The Obama strategy on job creation is now largely focused on a one-year cut in the payroll tax funding Social Security. President Obama originally wanted to cut the tax by 3.1 percent for employees and then later added employers. The cut in the employers' share of the tax cut was later dropped because of the difficulty of paying for it with additional revenue. Presently, the focus has shifted to carrying over for two months the two percent cut, which would have expired on January 1, 2012. The issue will then become whether to extend the two percent cut throughout 2012 of maybe even try to get the 3.1 percent cut that Obama originally wanted.
Economists are generally agreed that the unemployment rate will likely not have changed very much in the next year. The quarterly improvement in the GDP is also not expected to be very robust in the next year. Near the end of 2012, when taxation decisions on a further extension of the payroll tax cuts and the Bush tax cuts will arise, President Obama and Democratic lawmakers will likely be in much the same situation as they are today: needing to claim that the tax burden can't be increased on 160 million Americans. Thus, not only will the Democratic leadership be pushed by logic to ask for another extension of the payroll tax cuts, but it will be hard to argue against an extension of the Bush tax cuts. It will take an act of political jujitsu to extend the Bush tax cuts for those earning under $250,000 and let them expire for the high earners.
Not only has President Obama and the Democratic legislative leadership fallen into a trap by focusing so intently on tax cuts as the best way to stimulate the economy and create jobs, tax cuts rank low in the job creation hierarchy. The National Priorities Project has charted the impact of spending $1 billion on potential job creation in select sectors. Spending the $1 billion on the military creates 11,600 jobs; $1 billion in tax cuts creates 14,800 jobs; with the same expenditure, 17,100 jobs are created in clean energy, 18,800 in healthcare and 29,100 in education.
When President Obama proposed a three-year freeze on spending in his 2010 State of the Union address, he exempted military spending from that proposed freeze. As indicated by the National Priorities Project's job creation by sectors charting, military spending is about the worst way to try to create jobs. Yet President Obama, in his 12-year plan, proposes to cut only $400 billion in military spending -- roughly a five percent cut -- and he has appointed a Secretary of Defense who is predicting gloom and doom if there are any further cuts in military spending.
The extent to which military spending predominates over nonmilitary discretionary domestic spending is illustrated in both the long- and the short-term by the National Priorities Project.
Total Cost Since 9/11 in Congress-Approved Discretionary Funds (FY 2012 dollars).
Combined budgets of Agriculture, Commerce, Interior, Labor, Transportation and the EPA - $80.3 billion.
Spending on: Nuclear Weapons - $230.3 billion; Homeland Security - $472.1 billion; Iraq and Afghanistan - $1.36 trillion; Pentagon Base Budget - $5.6 trillion. The total spending in these categories is $7.66 trillion.
The combined spending on six domestic categories equals about one and one-half percent on what gets labeled as national security spending -- I like to call it "fear" spending.
The National Priorities Project has broken down FY 2011 discretionary spending as follows: Environment, Energy ad Science - 6 percent; Transportation - 3 percent; Income Security and Labor - 2 percent; International Affairs - 4 percent; Health - 5 percent; Housing and Community - 6 percent; Government - 6 percent; Food - 1 percent; Education - 4 percent; Veterans' Benefits - 5 percent; and Military - 58 percent.
By freezing domestic spending, continuing to maintain a bloated Pentagon and focusing so much on tax cuts, President Barack Obama has embarked on just about the worst possible strategy for creating jobs.
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