The president’s jobs package would indeed create jobs

One of the best aspects of President Obama’s new budget plan is its near-term focus on job creation. This is a significant change from last year’s budget, where job creation was effectively ignored in favor of deficit reduction (likely in response to the GOP victory in the 2010 midterm elections, but that’s no excuse). This year, the president included $350 billion in job creation, $300 billion of which would hit the economy in the next year and a half.  Here’s what’s in it though fiscal year 2013:

  • $95 billion in the payroll tax cuts (employee-side)
  • $80 billion in other business tax cuts (including a $25 billion hiring credit)
  • $45 billion in emergency unemployment benefit extension
  • $25 billion in transportation infrastructure investments ($50 billion over ten years)
  • $20 billion in school facility repair and modernization
  • $30 billion in retaining or rehiring teachers and first responders
  • $25 billion miscellaneous neighborhood stabilization, job training, energy efficiency, VA conservation jobs, infrastructure bank, and manufacturing incentives

Last fall, the president proposed the American Jobs Act (AJA), a collection of policies designed to jump-start the economy. There are a few differences between the AJA and this jobs package—some policies were already enacted, some were scaled down, and there are a few new proposals—but this is essentially an updated and revised AJA.

And like the AJA, this jobs package would have an immediate positive impact on the economy and jobs. About 85 percent ($300 billion) of the package would hit the economy in the next year and a half. Using standard macroeconomic multipliers for the various policy categories, we find that the president’s job creation proposals would create 1.5 million jobs in fiscal year 2012 and 1.3 million jobs in fiscal year 2013 (through Sept. 2013).

The following graph shows by how much this proposal would lower unemployment relative to the unemployment levels under the Congressional Budget Office’s economic projections, if the historical relationship between GDP growth and unemployment held over the next two years. Note that CBO assumes that in Jan. 2013 the entirety of the Bush tax cuts will expire and the sequestration trigger will be implemented in full. A more realistic policy assumption that at least partially extends the Bush tax cuts and replaces the trigger would lower their projected unemployment levels. However, because the unemployment path under the jobs package was constructed off of the CBO baseline, the gap between the two would remain the same.

Some might argue that the full value of the $300 billion in the next year and half should not be included as “new” fiscal support, since the payroll tax cut is very likely to be extended for the full year (and full-year extension is included in the baseline of most macroeconomic forecasters’ models). In addition, the unemployment insurance extensions are also likely (though not guaranteed) to also run through all of 2012 (and many forecasts have some portion of these included in their baseline as well). Still, given the intense political pressure to move to immediate fiscal tightening, we think even just preserving the fiscal support already included in many forecast baselines is an important step in the president’s budget and should be highlighted.

For more on our job creation methodology, see our memo from last fall.


  • Benleet

    Demos published a $900 billion public jobs creation proposal in Jan. 2011 by professor Philip Harvey, “Back to Work”. Rep. Jan Schakowsky has proposed in A Budget for All, this year’s Progressive Caucus budget, “$2.4 trillion in job creating investments.” Part of which is direct job creation. The EPI also had a plan in the $300 billion range. Nouriel Roubini proposes a $1.2 trillion public jobs plan in The Way Forward. What you report here does not qualify as a jobs package, it’s a payroll tax cut combined with corporate tax cut, with only a minor part devoted to actual jobs. This article fails to separate out the actual jobs creating part from tax cuts, and then parse out the nature of the jobs that will be created. If this is “one of the best aspects” of Obama’s budget, we don’t have much to look forward to.