For a lot of businesses in California and the rest of the nation, there didn't seem to be much that President Obama could have said to sway them that Washington was able to help foster new jobs, but some liked his proposed $447-billion package of tax cuts and infrastructure spending — with reservations.
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Obama jobs plan spurs cautious hope among businesses
President Obama's package of tax cuts and infrastructure spending is seen as a simpler and more direct strategy than the 2009 stimulus. But paying for it and overcoming GOP opposition will be challenges, businesspeople say.
President Obama details his jobs plan to a joint session of Congress on Thursday. (KEVIN LAMARQUE, Associated…)
Primarily, they doubted that he stood a realistic chance of getting the program through Republican opposition in Congress. They also worried about what the stimulus he unveiled Thursday would mean for the nation's deficit.
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An earlier version of this online article misspelled the last name of Kurt Listug, the co-founder of Taylor Guitars in El Cajon, as Lustig.
"I love it from my standpoint, but looking at it from the government's standpoint, can they afford to do that?" said Kim Megonigal, chairman of Kimco Staffing Services in Irvine, which operates 40 offices in California.
Under Obama's plan, Megonigal stands to save $155,000 from the 50% payroll tax cuts of his existing employees. Additionally he would save as much as about $6,600 in payroll taxes for every new employee he adds as long as that represents overall growth in payroll up to $50 million from the prior year.
Obama's package prompted comparisons to the $787-billion American Recovery and Reinvestment Act passed in early 2009. That stimulus package, analysts said, helped pull the economy out of recession, but was seen as too complicated and producing too little bang for buck — a perception fostered in part by the administration's inaccurate forecasts about how high unemployment would go.
Obama's new plan was designed to be much simpler.
"I think they've learned from the Recovery Act and tried to make it easier to implement it and to be more effective," said Mark Zandi, chief economist at Moody's Analytics, a research and forecasting firm.
Zandi estimates that Obama's new ideas, if adopted in their entirety, would add 2 million additional net jobs in 2012 and bring the unemployment rate to about 8% by election time next year, down from 9% if there was no policy change. The rate was 9.1% in August.
"It's a bold effort to provide more support to the economy, certainly bigger than widely anticipated," he said.
Macroeconomic Advisers, another leading forecasting firm, was expecting a stimulus of about $300 million. It predicted Obama's package would increase employment by 2.1 million over the next two years.
The plan offers about $245 billion in tax relief for individuals and businesses, going well beyond the payroll tax holiday Congress enacted last year. Obama would expand that cut for workers, providing a $1,500 tax savings to the typical American family that saw a cut of $1,000 in the first round.
The proposal would also slash the payroll tax in half for businesses, up to $5 million in total payrolls, and declare a complete payroll tax "holiday" for employers who hire new workers or give wage increases to current employees. All companies would be eligible, but the break is designed to help small firms as it would be limited to the first $50 million in new payroll spending.
But the package is conspicuously absent any specific measures to provide direct relief to distressed homeowners and the depressed housing market, a problem many experts believe is central to the sluggish recovery.
"It was a sound bite, really," said Nick Segal, president and founding partner of Beverly Hills-based Partners Trust Real Estate Brokerage & Acquisitions, referring to Obama's statement that his administration was working to help more homeowners refinance. Segal said he loved Obama's idea of giving tax cuts to employers raising workers' pay; "that's fantastic," he said. Housing was another matter."We are going to refinance people's mortgages at rates that are 4%, but the question becomes, how do they do that?"
The president's plan also holds another potentially big risk down the road: The economic benefits in the short term will turn into drags in 2013 and the following year as the stimulus fades. And if the private-sector economy hasn't gathered enough steam by then, the government could be looking at the possibility of another recession or left with the tough choice of having to renew or increase fiscal spending.
Business trade groups were far less enthusiastic about Obama's plan.
Marty Regalia, chief economist for the U.S. Chamber of Commerce, said the proposed payroll tax cut fell short of broader tax reform needed.
"If you are trying to stimulate the economy and create jobs, there are better ways to do it, starting with a complete restructuring of the tax code for individuals and businesses," he said.
William Dunkelberg, chief economist for the National Federation of Independent Business, a small-employer lobbying group, doubts it will push many more small companies to add workers.
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