Proposed Obama plan could raise GDP and help avoid recession

U.S. President Barack Obama addresses a Joint Session of Congress at the U.S. Capitol in Washington, D.C.

Jeremy Hobson: President Obama heads to Richmond, Va. today to drum up support for the $450 billion jobs bill he presented to Congress last night. The plan is 53 percent tax breaks, with much of the rest going to infrastructure spending and aid to the unemployed.

Barack Obama: There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that's been supported by both Democrats and Republicans, including many who sit here tonight.

Well there are the politics. For more on the economics of the plan, let's bring in Richard Dekaser. He's an economist with the Parthenon Group in Boston. Good morning.

Richard Dekaser: Good morning.

Hobson: What, to you, is the most important and useful part of this package for economic growth?

Dekaser: The biggest part of the package, both in terms of dollars and impact, are the changes to Social Security payroll taxes. This year, individuals have been enjoying a cut on their Social Security payments, and this proposal extends that into 2012. Now it's actually giving employers a greater incentive to hire workers, and that's where I think the real hook is in terms of jobs.

Hobson: I want to ask about one other part of this. There is $60 billion in this $450 billion package that goes to more aid to the unemployed. Why is something like that in a job creation bill?

Dekaser: It's trying, or at least designed, to help those who are at the greatest risk of becoming perpetually unemployed. But there are also other aspects of this -- for example, those targeted at returning veterans -- that are really, I think, designed to address the prospect of all of these soldiers coming back and not finding employment, and also adding to that pool of long-term unemployed.

Hobson: So noble causes, for sure, but does that lead to less unemployment?

Dekaser: It does, and it's all about dollars. If people, or employers in particular, are getting more incentive to put people on the books, they'll respond to those incentives. Now, is it a total game changer? Is it going to cause HR managers to run out a long list of help-wanted advertisements? No. But on the margin, it will be impactful, and it's really on the margin that we're operating.

Hobson: Richard, I just want to ask you -- do you think that this is really going to lead to growth if this thing gets passed, or is this just enough to keep up out of another recession?

Dekaser: I think this is going to contribute to growth. Now, my base line assumption has been that we're looking at an economy creeping along at about a 2.5 percent rate in real GDP terms -- which is nothing to write home about, but that is certainly non-recessionary. Layering this in should add about a percentage point, which takes us from the muddling along mode to something a little bit more respectable. I think it'll help keep the economy moving forward, and I think the recession, to the extent that it was at all possible, is now much less likely.

Hobson: Richard Dekaser, economist with the Parthenon Group. Thanks so much for joining us.

Dekaser: It's been my pleasure, thank you.

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