Obama's Unemployment Plan

Obama delivered his speech to Congress this evening.  It is called a jobs plan, but it is more of a plan to keep unemployment where it is.  It was mostly typical Obama stuff, with more Keynesian economics.  However, there are a couple of bright spots with his proposal.

Obama is proposing to extend the tax cut on payroll taxes.  In fact, he is even proposing to lower it more.  This is good for anyone working as it will mean more money in their pocket.

As I have said in the past, if Obama really wants to help unemployment, he needs to lower the cost of labor for employers.  This means that it would be far more effective to have a payroll tax cut on the employer's portion.  Well, Obama's advisers must be reading my blog or the website of the Mises Institute.  He proposed this very thing tonight.  He is proposing to lower the employer's portion of the payroll tax and to even eliminate the tax for wages in the form of raises and new hires.  If he really wanted to make this good, he would propose to make it permanent.

The overall plan he delivered was for about $450 billion.  The yearly deficit alone is $1.5 trillion, so even if his proposals were all good, this is not significant enough to make a big difference, particularly with unemployment.  If he came out with a plan to eliminate the entire deficit, then it would make a huge difference in the economy, freeing up capital for the voluntary sector.

Of course, Obama's plan also consists of spending on schools and infrastructure and unemployment benefits.  It is typical Obama and Keynesian economics.  It will just do more damage to the economy in the form of misallocating capital.

Obama said that his plan will be paid for, but he was short on specifics, other than playing his typical class warfare.  He will continue to advocate taxing the rich more and it is unlikely that he will advocate anything in the way of significant spending cuts.

In conclusion, we should be happy about the tax cut portion of Obama's proposal.  If it goes through, you should take your extra money and put it into gold or residential real estate (things that can't be created out of thin air).  Obama's proposal for a tax cut on the employer portion of payroll taxes may have a minimal positive effect on jobs.  Unfortunately, the rest of his garbage more than offsets any good from this.