The President’s Plan: By the Numbers

The Lehmann Letter (SM)

Here is how the president's recent jobs bill breaks out: Extend payroll-tax cuts - $250 billion, extend unemployment benefits - $50 billion, hire more teachers, police and firefighters - $35 billion, infrastructure projects - $105 billion.

This is to be paid by a $400 billion increase in taxes on upper-income earners and a $40 billion increase in oil-industry taxes.

So $440 billion in tax-cut extensions and additional expenditures are to be paid by $440 billion in additional taxes.

If you look at these numbers, it seems that a $300 billion tax-cut extension and unemployment-benefit extension for low-income folks plus $140 billion of infrastructure spending and public-servant hiring will be funded by higher taxes on upper-income folks and the oil industry.

What impact will this have on the economy? To begin with, it's clear that not extending payroll-tax cuts and unemployment benefits would have a depressing effect. These measures enable more spending by those who have a high propensity to consume.

Keep in mind, however, that these cuts will be paid for by higher taxes on top-income earners. It is true that this will be expansionary to the extent that low-income taxpayers spend more of their income than high-income taxpayers. But there will be arguments about the net benefit.

Even the additional $140 billion of expenditures on hiring and infrastructure will be paid for by additional taxes. There will be arguments about the net benefit of that, too. Nonetheless, there is no doubt about that expenditure increase.

Will all this be sufficient to substantially reduce unemployment? The answer has to be "No." The current situation is too dismal to hope for that. But taxing the well-off to extend tax cuts and benefits for the not-well-off will have its appeal over and above any net employment gains, as will the hiring and infrastructure provisions.

© 2011 Michael B. Lehmann