According to the US Bureau of Labor and Statistics, the unemployment rate is currently at 9.1%. As his response, President Obama presented a plan to add more jobs to the economy in an address to Congress. According to Obama, his plan, the American Jobs Act, “Will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services.”
One problem with Obama’s claim is that the original stimulus, the American Recover and Reinvestment Act (ARRA), worth $821 billion, was predicted to curb the unemployment rate at a maximum of 8%. But, since President Obama signed it into law in early 2009, unemployment easily passed the 8% benchmark, peaking at 10.1% in October of 2009. From then on, it has fluctuated, dropping to its lowest mark of 8.8% in March 2011 before leveling out at 9.1%. All of these rates have been worse than the predictions from the ARRA. If the claims from the original plan were incorrect how can his current claims be trusted? If the original stimulus did not work very well at all, how is this one better?
Americans must also consider the additional cost of this plan to the national debt. In its current state, it will cost $447 billion, forcing the US to borrow even more money to pay for an act that most likely will not even work. During the initial presentation of the plan, President Obama tried to address this issue by asking the Joint Select Committee on Deficit Reduction, already charged with finding $1.5 trillion in cuts over the next ten years by the Budget Control Act of 2011, to find an additional $500 billion to cover the American Jobs Act. The problem with this is the United States will be spending that $500 billion now where as the cuts will come over the next 10 years. Which means we will still end up borrowing the majority of the money for this program, adding on to our $14 trillion in debt. This will not help the economy. Part of the mess America is currently in is due to the enormous debt that has accumulated, making investors and businessman uncertain about the economy and unwilling to take risks. These risks are crucial to the healthy function of the job market as they usually take form in the starting of or investing in a new business which, in turn, puts more people to work.
Finally it is necessary to note that when Obama recommends increasing taxes for “millionaires and billionaires,” he is recommending taxing those who provide most of the jobs in this nation. Many millionaires only make one to two million a year, which appears like a lot of money, especially for someone who is out of work. But one must consider that many of these people own Limited Liability Companies (LLCs). An LLC is a pass-through-entity, meaning that the LLC’s income is reported on the owner’s tax return and the owner of the LLC is taxed not just for their personal profit but also their business’s profit. This means that a business owner who only takes home $200,000 a year may have a reported income of over a million a year because of their business’s profit. The majority of that profit they spend by reinvesting in the company, thus creating more jobs, but they are taxed for the entire thing. So when the President recommends increasing taxes on them it will inevitably take money out of their LLC which is providing jobs to many individuals.
The American Jobs Act has all the right intentions but all the wrong methods. The taxes contained within it will cripple small businesses such as LLC’s, the addition of $500 billion to America’s national debt will only further destabilize the economy, and even if the above mentioned points were not a problem there is a cloud of doubt about this program created by the first stimulus. Obama has good intentions with the American Jobs Act, but the actions that are required are only going to hurt the United States of America.