President Obama unveiled his eagerly awaited jobs plan recently, which might bring fresh hope and confidence to the economy and to the lives of people in America. The plan is mix of deliberate adjustment of expenditure and taxation, with a purpose to assist the ailing U.S. out of the recovery bed.

The President revealed what many have seen as a second stimulus package to lift the economy from recession. He proposed mild ramifications with fiscal tools, deductions in payroll taxes and extending the spendings on infrastructure and other alternatives to get the economy running again.

In order to increase activity, a mix of tax cuts and spendings on schools and roads, aid to teachers and assistance to the unemployed was announced. The total cost of the plan is $447 billion of which $253 billion will go to tax-cuts and $194 to new spendings. A select part of the bill could become law and provide a measure of support for the economy.

The best component to win the congress’ approval is the payroll tax cuts. Reduction in tax rates will give more purchasing power to the consumer, which eventually should push demands upwards. Currently employees normally pay 6 percent if their income in tax, but in the future, they may become liable to pay only 4.2 percent. A reduction of 2 percent.

Fundamentally, the Obama administration wants to put more people to work and increase spending so that a weakened demand may get strengthened and help bring back certainty in economic activity.

The $447 billion cost program is nearly half of the stimulus package announced by the President in 2009, and reflects the severity of the economic crisis. When the economy is weak, governments will often launch ambitious analysis to find out the root cause of the problem, and upon successfully finding it, they design policy to curb or mitigate its impact on the economy.

As in this case, Obama proposed a National Infrastructure bank which would cost $10 billion to establish, but which would pay for new public construction projects like local roads, bridges and mass transit systems.

Furthermore, the president outlined new spending program for school modernization (at least 35,000 public schools) with total spending of $25 billion. In an effort to provide benefits to jobless people, the plan sets aside $62 billion for unemployment insurance to continue supporting the jobless.

Many economists say that the American government must put billions of dollars into the economy to keep it from sinking into recession, but no proposal is ever be without criticism. Nigel Gault, Chief Economist with HIS Global Insight said “If you give somebody a tax cut and they just save it, then there no jobs created”.
Christopher Halloran / Shutterstock.com

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About the author

Muhammed Faraaz
Post-graduate in Economics from India, unfolding complexities and policies. Proponent of Classical Economics.

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