By John Fritze, The Baltimore Sun
8:34 PM EDT, September 9, 2011
President Barack Obama's plan to combat unemployment by pumping $447 billion into the nation's economy won cautious praise from Maryland-based small-business owners and labor groups Friday, but there was widespread skepticism about the proposal's chances in Congress.
Business leaders and economists say the measure's centerpiece policy — a $240 billion reduction in payroll taxes — could give small companies incentive to hire new employees. Construction groups expressed hope that $100 billion in new infrastructure spending would boost their sagging industry.
"It's a very good thing to make it less burdensome to keep employees and give some testosterone to businesses to hire a new employee," said Drew Greenblatt, president of Marlin Steel Wire Products in South Baltimore. "If you reduce the penalty we pay to hire an employee, then we'll hire more of them."
But on the day after Obama unveiled the American Jobs Act during a joint session of Congress — and implored lawmakers for speedy passage — legislative leaders began sniping at each other over whether the plan would advance in one piece or should be broken into smaller parts and considered separately.
The president, meanwhile, took his proposal on the road. Speaking Friday to thousands of students at the University of Richmond, Obama sounded the same themes of urgency that he raised during his Thursday address.
"Now is not the time for people in Washington to be worrying about their jobs," he said. "It's time for them to be worrying about your jobs."
Among the most significant items included in the plan is an extension and expansion of the payroll tax cut for employees. Under a tax break approved by Congress last year, workers have been paying 4.2 percent in Social Security taxes instead of the usual 6.2 percent. If Obama's jobs package were approved, employees would pay 3.1 percent in 2012, good for $1,550 in savings on a $50,000 salary.
The package, which the White House expects to send to Congress later this month, would also cut in half payroll taxes paid by employers, up to the first $5 million in wages. Moreover, companies that hired new workers or provided raises would be exempt from all payroll taxes on that new spending for one year.
Not everyone is convinced that the plan would have a significant impact on the economy. Mark Habicht, president of Kirk-Habicht Co. in Baltimore County, said many companies in Maryland are not in a position to hire new workers, so the targeted tax credits don't help.
Further, the tax cuts would be guaranteed for only one year, potentially forcing companies to pay full payroll taxes in 2013 on all of their new employees.
"If we're not making money, then we're not paying taxes anyway," said Habicht, whose company makes springs. "It sounds like the same old thing that they've talked about before, but it just has little to no effect on our business."
Some of the ideas included in the package could have a disproportionate impact in Maryland. The White House has proposed speeding payments to small federal contractors. Maryland companies did more than $34 billion in federal contracting work in 2009.
The administration has not released details of that proposal, but Alan Chvotkin, executive vice president of the Professional Services Council, speculated that the administration might be considering an expansion of a recent Department of Defense program that cut the time it takes to pay small contractors from a month to about two weeks.
"It changes cash flow, and the cash flow can put more money in your pocket for buying equipment," Chvotkin said. "Or, if you make your payroll every month, you might be able to make payroll every two weeks instead."
Another idea with potential implications for the state: Obama proposed spending $15 billion to put construction crews to work rehabilitating hundreds of thousands of vacant and foreclosed homes and businesses. Baltimore Mayor Stephanie Rawlings-Blake has made reducing the city's inventory of 30,000 vacant properties a focus of her administration. She briefed federal officials about her ideas in July.
Anirban Basu, head of the Baltimore economic consulting firm Sage Policy Group, warned that the hyper-partisan climate that has stalled recent negotiations over the budget and the nation's debt limit is likely to have a big impact on whatever Washington can accomplish on the jobs front.
"Until we sort through the politics, his speech and his plan have no economic relevance," Basu said.
But Basu suggested that the political landscape could tilt in the plan's favor if the nation is pummeled with a string of bad economic reports.
Yet even if the measure were approved in its entirety, which is unlikely, economists said its impact would be limited.
The plan weighs in at a little more than half the size of the $830 billion economic stimulus plus approved in 2009. While Democrats and some economists say the stimulus saved the economy from further collapse, it did not return the unemployment rate to its pre-recession lows.
"It's a net positive to the economy, at least in the short term," Basu said. "But $447 billion really can't do that much to alter the trajectory of a $15 trillion economy."
Kenneth Kelm, principal officer of the Baltimore-based Teamsters Local 311, said that money for school, highway and airport construction would "open up some jobs here locally."
But he added that the new spending Obama is seeking is likely to be the most controversial part of the plan on Capitol Hill.
Kelm's union local has about 2,000 members, including some who haul heavy equipment and other material for construction.
"The whole thing is going to come down to politics," Kelm predicted.
Michael Galiazzo, executive director at the Regional Manufacturing Institute, a trade association, said he wishes Obama had put more emphasis on reviving the nation's lagging manufacturing sector.
But he said the tax reductions and regulation changes Obama discussed are a step in the right direction for business generally.
"It's an opportunity for Democrats and Republicans to agree on some strategies that might help small and medium-sized companies be more competitive," he said. "There's a lot at stake here."
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