Barack Obama is seeking legislative backing for economic stimulus worth $450-billion (U.S.), making the U.S. President a lonely advocate for spending at a moment dominated by calls for austerity.
Mr. Obama told a joint session of Congress Thursday evening that the United States must get a grip on its rising debt, but not at the expense of condemning millions of people to the unemployment rolls and welfare because traumatized companies refuse to hire.
“Ultimately, our recovery will be driven not by Washington, but by our businesses and workers,” Mr. Obama said. “But we can help. We can make a difference. There are steps we can take right now to improve people’s lives.”
The President’s proposals Thursday were the same as those telegraphed in the U.S. media over the previous 48 hours. He’s responding to an economy that is quickly losing momentum, expanding at an annual rate of only 0.7 per cent in the first half of the year. The unemployment rate is 9.1 per cent, compared with 8.8 per cent in March, and 14 million Americans are unemployed more than two years into the recovery.
Like the roughly $800-billion stimulus program Mr. Obama shepherded through Congress in early 2009, his new proposal would ease the tax burden on the middle class; send money to states, which have cut almost 500,000 jobs since 2010; and seek to create jobs for millions of unemployed construction workers by plowing millions into refurbishing roads and schools.
The idea that government spending can fix the economy is significantly less popular today than it was two years ago, when the world’s major economies came together to spend trillions to arrest the global economy’s descent into a depression.
It was only a month ago that Washington was driven to distraction over the Republican Party’s apparent willingness to accept a default, rather than extend the Obama administration’s borrowing authority. The standoff was ended only after Mr. Obama accepted spending cuts that were roughly equal to the increase in the legislative debt ceiling.
The impulse for austerity remains a powerful one. The household savings rate is above 5 per cent, compared with zero ahead of the financial crisis. Businesses are sitting on trillions in profits, preferring to sit idle rather than invest. Some polls suggest that a majority of the U.S. population sees debt reduction as the country’s No. 1 economic priority.
The U.S.’s publicly held debt is on track to reach 82 per cent of gross domestic product by the end of the decade, higher than in any year since 1948, according to the Congressional Budget Office.
“We have to sacrifice. Period. End of story,” said Barry Sloane, chief executive of New York-based Newtek Business Services, which provides everything from payroll processing to loans for 100 small- and medium-sized companies. “No one is telling Americans that they have to sacrifice.”
Mr. Obama is aware of the anxiety over spending. He told lawmakers that he would present a detailed proposal to reduce the U.S.’s longer term deficit a week from Monday. “Everything in this bill will be paid for,” Mr. Obama said. “Everything.”
The U.S. economy is faltering in part because previous stimulus programs are dwindling, while private demand has yet to return in robust way.
Tax cuts are the focal point of Mr. Obama’s plan. He would cut employee payroll taxes in half, at a cost to the Treasury of $175-million. Employers’ payroll taxes also would be reduced by half, and eliminated for new hires or an increase in wages. Businesses that hire workers who have been unemployed for more than six months would get a tax credit, an initiative the White House estimates would cost $8-billion.
Mr. Obama also proposes direct transfers worth $140-billion. Some $35-billion will go to states to help them retain teachers, police officers and fire fighters, while $30-billion would be used to refurbish schools, an initiative the White House likes because the work involved tends to be labour intensive and the contracts can be signed quickly.
Most of the initiatives would last for one year.
Each of those proposals has in the past earned support from Democrats and Republicans alike.
But in the current political environment, that might count for little. The fight over the debt ceiling showed that it was a mistake to assume that something as fundamental as paying the government’s bills would be treated as a routine matter. The more than 80 rookies in the House of Representatives, most of whom are backed by the Tea Party, play by different rules than those typically practised by the Washington establishment.
“The political discourse over these issues during the last year has been almost devoid of economics,” said Robert Shapiro, co-founder and chairman of Sonecon LLC, a Washington-based consultancy, and a former senior official in the Commerce Department during Bill Clinton’s presidency. “I wouldn’t have thought a lot of these positions were sustainable.”
Mr. Shapiro said Mr. Obama likely would get Republican support for his tax cuts, but that everything else likely would be blocked.
“I have confidence the President will give it his best,” Mr. Shapiro said. Asked whether that would be enough, Mr. Shapiro said no.