Cause and Effect in European Politics and Law

The Stakes of the US Presidential Elections in 2012 will be Jobs

Adelina Marini, September 10, 2011

Initially everyone in the US were focused on spending cuts to reduce the enormous budget gap. With the latest economic data, however, it becomes clear that three years from the start of the Great Crisis of 2008 the American economy is far from recovery. And one of the main reasons for this is the not diminishing unemployment. This is why the issue of jobs creation and the boost of economic growth turned into a milestone for both President Barack Obama's administration and the presidential hopefuls of the Republican party. As the Republican majority leader in Congress, Eric Cantor, said "the fact is, for the last eight months-plus, we’ve been about cuts. That’s why it is imperative that all of us join together, work with the president, to see how we can grow this economy".

In their wish to start that conversation immediately after the end of the summer vacation of Congress, the White House and the Republican camp clashed over the date on which they wanted to reveal their ideas for economic revival. Initially the White House wanted the president to speak at a joint Congress session on September 7 but it appeared that long time ago this date was reserved for the debate of the Republican presidential candidates. This is why the president was forced to yield and to speak on September 8, thus not allowing the Republican hopefuls to discuss his ideas.

The Presidential Plan

The long-awaited plan practically is another big budgetary injection to stimulate the economy but this time it will not cost almost $800bn but $447bn. That much will cost the measures, outlined by Mr Barack Obama. They include tax relieves for the small business, aimed at hiring new workers or raising the wages of those already hired. In half will be reduced the payroll taxes paid both by employers and workers in firms on their first $5 million in payroll. This relief will cover almost 98% of firms that have payroll below this threshold. Payroll tax will be completely eliminated for firms that increase their payroll by adding new workers or increasing the wages of their current worker. This benefit, however, is capped at the first $50 million in payroll increases. This part of the plan will cost $65bn.

A large plan of the plan is directed to investment in construction and infrastructure - $140bn. 25 billion is planned to be spent on investing in school infrastructure, aimed at modernising at least 35,000 public schools. The purpose is to create jobs and that is why the projects will be selected with a priority given to regions where there is a big number of foreclosures and high unemployment.

$50bn will be invested directly in highways, railways and airports. "Building a world-class transportation system is part of what made us a economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads? At a time when millions of unemployed construction workers could build them right here in America?", the president asked rhetorically provoking strong applause mainly among the Democrats in Congress.

In order to boost infrastructure development the president calls on Congress to adopt the creation of a National Infrastructure Bank with $10bn capital, whose aim will be to leverage private and public capital and to invest in a broad range of infrastructure projects of national and regional significance. After mentioning that many people, especially among the Republicans, think that prosperity will return only after the government is dismantled, everyone's money is reimbursed and everyone follows his own rules, the president said:

"Ask yourselves - where would we be right now if the people who sat here before us decided not to build our highways, not to build our bridges, our dams, our airports? What would this country be like if we had chosen not to spend money on public high schools, or research universities, or community colleges? Millions of returning heroes, including my grandfather, had the opportunity to go to school because of the G.I. Bill. Where would we be if they hadn’t had that chance?", again Obama asked, accompanied by tumultuous applause.

$35bn will be invested to prevent layoff of 280,000 teachers, while at the same time hiring is preserved for tens of thousands of cops and firefighters. The money will be directly paid to support the state and local authorities. Of this money the largest share (30bn) is aimed at protecting the jobs of teachers and the rest of 5bn is aimed at protecting the jobs in public safety and first responder personnel.

Obama's speech did not sound as before. At the joint session of the House of Representatives and the Senate, he attempted another tone. But he did not sound as convincingly as before. He sounded maybe a bit more emotional or at least this was the effect that was sought. A focus in his words was "Pass this jobs bill and starting tomorrow, small businesses will get a tax cut if they hire new workers". Almost every new paragraph of his speech started with "Pass this bill". He tried to speak before Republicans and Democrats from the position of a supra political leader whose only aim is to get the economy back on growth track.

This is why he emphasised that the proposed measures in the jobs bill were in fact a collection of ideas both of Democrats and Republicans. According to Barrack Obama, of great significance would be to reform the tax code, which is a painful topic for the republicans. "Our tax code should not give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs right here in the United States of America. If Americans can buy Kias and Hyundais, I want to see folks in South Korea driving Fords and Chevys and Chryslers. I want to see more products sold around the world stamped with the three proud words: 'Made in America'. That’s what we need to get done".

The president acknowledged that he was aware that for sure there were better ideas than his but it was important to act immediately. "But know this: The next election is 14 months away. And the people who sent us here - the people who hired us to work for them - they don’t have the luxury of waiting 14 months. Some of them are living week to week, paycheck to paycheck, even day to day. They need help, and they need it now", the president concluded.

A Republican measuring of jobs

The Republican debate, organised by the NBC and the Politico website, turned into a real measurement of who precisely how many jobs had created. The main battle took place between the leader in opinion polls, Texas Governor Rick Perry, the former polls leader and Governor of Massachusetts - Mitt Romney - and the former (until very recently) US ambassador in China and former governor of Utah, John Huntsman.

Although the debate was not thematically focused on economy and jobs only, it was logical, because of the high unemployment (9%) and the expected presidential plan, this to be the first topic on which the candidates spoke. Rick Perry boasted that during his long term as a governor of Texas 1 million jobs were created compared to overall of 2.5 million in America at large. Responding to criticism that in fact these jobs were low-wage, he said that 95% of them were above minimum wage.

Mitt Romney, in his turn, announced that during his four years as a governor of Massachusetts the high unemployment was reduced to 4.7%. After releasing these data Romney was immediately attacked by Perry: "Well, Governor Romney left the private sector. He did a great job of creating jobs in the private sector all around the world, but the fact is that when he moved that experience to government he had one of the lowest job creation rates in the country. [...] As a matter of fact we created more jobs in the last three months in Texas than he created in Massachusetts".

Although he had spent his speaking time, Romney immediately responded: "Wait a second. States are different. And Texas is a great state. Texas has zero income tax. Texas has a right to work state - a Republican legislature, a Republican Supreme Court. Texas has a lot of oil and gas in the ground. Those are wonderful things. But Governor Perry doesn't believe that he created those things. If he'd try to say that he'd be like Al Gore saying he invented the Internet". These words of his were accompanied with tumultuous applause and laughter.

John Huntsman joined the measurement of who how many jobs had created. "I hate to reign on the parade of great lone star governor but as governor of Utah we were the number-one-job-creator in this country during my years of serving. That was 5.9% while you were creating jobs at 4.9%. And to my good friend Mitt - 4.7% just ain't gonna cut it, my friend. Not when you can be first".

By the way, the dispute about who how many jobs had created sounded ridiculous against the backdrop of the general economic situation. Especially awkward it was for Mitt Romney who literally days before the debate announced a plan of his own of 59 points, spread on 160 pages. When presenting it he said: "The right answer for America is not to grow government or to believe that government can create jobs. It is instead to create the conditions that allow the private sector and entrepreneurs to create jobs and to grow our economy. Growth is the answer, not government".

These words of his hang not very comfortably in the backdrop of his boasting during the debate on how many jobs he had created. Among the other ideas of his is reducing corporate tax from 35 to 25%.

From the rest of the presidential hopefuls, only two managed to present specific ideas to fix the economic situation. Former Senator Rick Santorum said that corporate tax should be actually abolished because the aim was the middle class of America to be rebuilt again. Thus the jobs created by corporations overseas, because of the unbearable taxes, would return to the US.

Herman Cain, until February this year a chairman of the Federal Reserve in Kansas, said that the only thing that would fix the economy was eliminating the current tax code that drained entrepreneurs and was a big hurdle for the economy. He called his plan "my nines" because it consisted of introducing a 9% corporate tax, 9% personal income tax and 9% sales tax. "If 10 per cent is good enough for God, 9% ought to be good enough for the fellow government", Mr Cain said, causing loud cheering.

Most analysts are sceptical and even disappointed with the plan presented by President Obama because the expectations are the proposed measures, even if approved by Congress (in the lower chamber the Republicans have a majority, while the Democrats have a majority in the Senate), would lead to employment growth of around 50,000 jobs per month. To compare - for the past three months the increase is going with a slow pace of 35,000. According to analysts though, the tempo must be at least by 100,000 a month in order to take into account the demographic growth.

Against this backdrop, the US fell 1 place in the Global Competitiveness Index and this year it takes the 5th place of 142 countries. It should be bared in mind, however, that last year America stood on 4th place but out of 139 countries, while the year before that the country was 2nd out of 133. Regarding the envisaged in the Obama plan measures to create jobs, here are some of the key indicators. On the Infrastructure indicator the US ranks 16 in the Global Competitiveness Index. Regarding macroeconomic environment, though, it ranks the unenviable 90 place. Only on the Innovation criterion the US ranks among the first - 5th.

It is interesting to note that the respondents have pointed as the biggest problem before economic activity precisely taxation, followed by ineffective government bureaucracy and access to financing. And, yes, indeed a little more than a year is left to the presidential elections in 2012. The major issue now is how will the political battles take place and whether again the economy will fall a victim of close party interests. Exactly as it happened in the beginning of August with the dispute about raising the debt ceiling. By the way, this is an issue that will again put to a test the American economy, whose health the entire global economy depends on.