Last Thursday, I watched with my family as President Obama announced the American Jobs Act to the public. The AJA is a plan to boost infrastructure, the construction jobs associated with it, and jobs for teachers and firefighters. Further, it provides for significant tax cuts for hiring new workers, especially the long term unemployed, or raising wages. Additionally, the AJA would cut payroll taxes and give a payroll tax holiday of up to $50 million if a company hires new workers or increases employee salaries. This initiative would be effective under the economic principal “people respond to incentives.” These provisions geared towards small businesses stimulate aggregate demand as consumers experience a rise in income. Like we learned in class, a rise in income increases demand. Of course, as we’ve also learned in class, “There’s no such thing as a free lunch.” Somehow, these measures must be paid for. As a Wall Street Journal article published today notes, costs incurred by the AJA will be covered by:
§ “Limit on itemized deductions ($200,000 individuals, $250,000 families)
§ Carried interest would be treated as "ordinary income" rather than at capital-gains rate
§ Oil- and gas-company tax breaks
§ Corporate-jet depreciation would change”
It is important to note that these measures cover costs of $447 billion and also garner an additional 20 billion, according to White House Budget Director Jack Lew.
As the product of a middle class upbringing, I believe in itemized deductions for the upper class, and therefore support the first measure for covering costs of the Jobs Bill. Warren Buffet recently addressed the injustice of the fact that he, a billionaire, pays less in taxes than his secretary. I agree with Buffet. The upper class, those who can afford it, should have a greater share in the burden. Most notably, this measure alone will raise $400 billion according to Bloomberg Business and Financial News.
Next, President Obama attacks carried interest, defined as “the share of profits taken by hedge fund managers” by Forbes Magazine. In laymen’s terms, this provision imposes heftier taxation on hedge funds. Whereas before hedge fund managers were able to game the system, lessening their costs by treating carried interest at a favorable capital gains rate (intended to be used to encourage long term investment, but exploited by hedge funds), and incurring a tax rate of 15%, they now are subject to treat carried interests as “ordinary income” raising their taxes to 35%.
Third, the president plans to cut Oil and Gas Company tax breaks. For years these companies have used loopholes to pay nearly nothing in taxes. President Obama posed an important question; "Do we keep tax loopholes for oil companies, or do we put teachers back to work?" As we know, the real cost of something is what you must give up to get it. Ultimately by sacrificing subsidies to Big Oil in order to boost jobs for teachers, construction workers, and firefighters, we will experience an increase in income and helping the ailing economy.
The last measure restricts tax breaks for owners of corporate jets. Opponents of this measure have argued it would hurt jobs connected with aircraft design and construction, but any job losses in this sector are outweighed by job gains elsewhere, especially in Obama’s infrastructure initiative.
On the contrary, Anna, tax breaks for small businesses will not work as there is too much uncertainty in the market created by Obama and his regulations. Therefore, small businesses will not hire new workers just for a tax break, as there needs to be demand for their product that is greater than the payroll for the new workers.
ReplyDeleteI agree that, currently, there is not enough demand. However, this is an issue addressed by the AJA. See the following excerpt from The Atlantic:
ReplyDelete"If there's one thing the president's plan is focused on, it's demand. Extending and expanding the payroll tax cut on employees gives the typical worker $1,500 extra cash next year. Extending unemployment benefits gives money to those most likely to spend it."
Further, the bill helps create more jobs for firefighters, educators, and construction workers. Moody's Analytics figures that Obama's whole jobs package, if enacted, will significantly impact unemployment by adding nearly 1.9 million jobs to the economy during 2012. This translates to unemployment rates falling from 9.1 percent to about 8.3 percent, according to The CS Monitor.