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Analysis: Obama jobs plan reinvigorates growth outlook

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Analysis: Obama jobs plan reinvigorates growth outlook

Economics estimated that Obama's plan is equivalent to 3 percent of U.S. GDP and should be enough to add significantly to 2012 growth if passed in full by Congress.The biggest single boost could come from a $250 billion reduction in payroll taxes. Obama proposes extending an existing 2 percent cut in the payroll tax and increasing its size to 3.1 percent for workers, and adding a cut for employers.

WASHINGTON - President Barack Obama's jobs package could lift economic growth by one to three percentage points in 2012, add well over one million jobs and lower the unemployment rate by at least half a percentage point, judging by early estimates.It might not exactly deliver the "jolt" Obama claimed in his speech to Congress, but it would be enough to make a difference.

The basic idea is to give a sufficient boost to get the stalled recovery over the hump where households, banks and businesses have paid down more of their debt loads and regained the confidence to start spending, lending and hiring again.Once demand picks up, the private sector will kick in and begin hiring, and the fiscal props can fall away.It would deliver the economic medicine prescribed in recent weeks by Federal Reserve Chairman Ben Bernanke and the International Monetary Fund to prevent a worrisome slowdown in global economic growth from turning into recession.Treasury Secretary Timothy Geithner also can assure his fellow finance officials at the G7 meeting of top industrial nations in Marseilles the United States is pulling its weight.The wild card of course is whether a Republican-dominated House of Representatives will agree to the full $447 billion package, an unlikely prospect given their criticism that the $830 billion stimulus program of February 2009 failed to deliver lift-off for the economy and added to the huge budget deficit.

The U.S. economy is so scarred by the 2007 housing credit implosion, the bank failures it triggered in 2008 and the deepest recession in 70 years that it is taking a very long time to recover and create jobs."What you come down to is that there is no silver bullet, no magic bullet that this president or anyone can propose that would drive unemployment down to 5 percent in the next year," said Joel Prakken, chairman of Macroeconomic Advisers, an economic modeling firm in St. Louis."It has to come from the private sector and for that you have to work through the overhang from the housing crisis that is suppressing aggregate demand," he said.This suggests that Obama's jobs program most likely would serve as a palliative, not a cure, leaving room for the Federal Reserve to provide further monetary stimulus to keep the economy from slipping back into recession.

BUILD AMERICA - Analysts at Capital Economics estimated that Obama's plan is equivalent to 3 percent of U.S. GDP and should be enough to add significantly to 2012 growth if passed in full by Congress.The biggest single boost could come from a $250 billion reduction in payroll taxes. Obama proposes extending an existing 2 percent cut in the payroll tax and increasing its size to 3.1 percent for workers, and adding a cut for employers."These payroll tax reductions are the proposals that have the greatest chance of getting passed by Congress because it will be harder for Republicans to vote against proposed tax cuts," said Paul Ashworth, chief U.S. economist for Capital Economics.The tax cuts could add as much as $375 billion to economic output to the $14 trillion U.S. economy, based upon Congressional Budget Office estimates in August of the economic impact that fiscal stimulus programs can have on GDP.But not all of that would be fresh stimulus money, since a $112 billion payroll tax cut is already in place and would simply be extended. Additionally, the full impact would be lessened because it does not target lower income workers."It gives money disproportionately to people at the top of the income scale. Higher income individuals are more likely to save the money, they don't need to spend it on essentials, so the effective impact is lessened," said Roberton Williams, senior fellow at the centrist Urban-Brookings Tax Policy Center.