The American Jobs Act
President Obama addressed a joint session of Congress and presented the American Jobs Act on Thursday evening. In my estimation, the $447 billion jobs plan would be the third domestic stimulus plan since the credit crisis of 2008. The best executed, and impactful, global stimulus plan since the credit card was the $500 billion Chinese stimulus plan in early 2009.
In the near term, the U.S. economy is challenged by absent growth. The 10-year Treasury at 2% underscores the near-term growth problem is not a deficit issue. Investors should not expect the enactment of all, or a portion, of this legislation to serve as a catalyst for the capital markets.
The deficit reduction debacle in late July certified gridlock until the November 2012 election. I believe monetary solutions are exhausted. If the S&P 500 Index is to continue to appreciate in the final months of 2011, the potential catalysts could be a reacceleration in emerging market demand, U.S. corporate earning strength, and a European strategy to cure the cause, not treat the symptoms.
The American Jobs Act, in summary:
- $447 billion, or 3% of GDP, includes $253 billion in tax cuts
- The Act would be paid for with spending cuts and tax increases. On September 19, President Obama will present that plan.
- $175 billion for a further payroll tax cut in 2012:
o Prior to 2011, the rate was 6.2% for wages up to $106,800.
o In 2011, the rate was reduced to 4.2%.
o This plan reduces that rate further in 2012 to 3.1%.
o It will cost $175 billion to further reduce the rate to 3.1%; to maintain the rate at 4.2%, the cost is $110 billion.
- $70 billion for an employer payroll tax cut, bonus payroll cut for new jobs/wages, and extending 100% expensing into 2012.
- $62 billion for Pathways Back to Work Fund for Americans looking for jobs.
- $140 billion for Rebuilding and Modernizing America initiatives:
o $35 billion for teacher rehiring
o $30 billion to modernize schools.
o $80 billion to rebuild roads and bridges.
o $15 billion for wireless initiatives, hiring veterans, and vacant property rehabilitation.
- Deadlines: The Joint Committee on Deficit Reduction must compromise and present a plan by November 23, and Congress must vote on it by December 23. Expect components of The American Jobs Act to be part of the package to be voted on.