A tentative thumbs-up.
That’s the assessment from economists, who have offered mainly positive reviews of President Barack Obama’s $447 billion plan to stimulate job creation.
Some predict it would put hundreds of thousands of people back to work next year, mainly because a Social Security tax cut for workers would be deepened and extended to small businesses.
“Payroll tax cuts are very powerful,” says Allen Sinai, chief economist of Decision Economics. “They provide a boost to direct income and, in turn, spending, which is important to growth.”
Mark Zandi, chief economist at Moody’s Analytics, estimates that the president’s plan would boost economic growth by 2 percentage points, add 2 million jobs and reduce unemployment by a full percentage point next year compared with existing law.
The heart of Obama’s plan is an expansion of the Social Security tax cut, which took effect this year and is scheduled to expire by year’s end. The tax cut now applies only to workers; it reduces their Social Security tax from 6.2 percent to 4.2 percent. Employers still pay the 6.2 percent rate.
Obama would renew the tax cut for a year and deepen it: He would drop workers’ Social Security tax to 3.1 percent.
Under his bigger tax cut, an extra $1,550 would go to taxpayers earning $50,000 a year. The Social Security tax is imposed on the first $106,800 of taxable income. That means the maximum savings would be about $3,300 for an individual and $6,600 for a couple.
Obama would also halve Social Security taxes for businesses on the first $5 million of their payroll. The White House says 98 percent of U.S. businesses have payrolls below that threshold.
Zandi calls this a “creative” way to help small companies, which have struggled more than larger ones to recover from the Great Recession of 2007-2009. During recoveries, small businesses normally drive job creation.
“Something like this is much needed” for an economy grappling with 9.1 percent unemployment, Zandi says. “The economy is on the edge of recession.”
Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, figures that the Social Security tax cuts alone would add 1 percentage point to economic growth and create 1 million jobs next year.
Michael Hanson, a senior economist at Bank of America Merrill Lynch and a former Federal Reserve economist, predicts similar benefits. He thinks the additional jobs would lower the unemployment rate by nearly half a percentage point in 2012.