Obama Goes Big — and Political — with $450 Billion Stimulus Plan

President Obama is finally laying out his latest plan to boost economic growth. The particulars of the American Jobs Act are important, and meaningful for an economy laboring under slow growth.

The administration believes the package, worth about $450 billion, is good economics. The centerpiece: extending and expanding the existing payroll tax holiday for another year. Instead of paying 4.2 percent on the first $106,800 of income, Americans will only pay 3.2 percent. (The usual rate is 6.2 percent) There are also tax cuts for business, funds for infrastructure and states, and money to support mortgage refinancing.

But, as a senior administration official described it to me this afternoon, the American jobs Act was also designed to be good politics. And with just 14 months until the 2012 presidential elections, the political calculus is almost as significant as the economic one.

President Obama frequently anticipates Republican criticism of his proposals by bargaining with himself instead of making declarative proposals. In this instance, he's anticipating the criticism — any measure will cost too much and add to the already large deficit! — by pairing the legislation with specific offsets and reforms, like the closing of corporate tax loopholes, and higher taxes on the wealthy. The plan he presents will be deficit neutral. What's more, ten days from now, he'll go to the Congressional deficit supercommittee and present plans on larger long-term fiscal reforms.

Many business groups objected to the payroll tax holiday on the grounds that it benefitted employees and did nothing for struggling employers. This time, Obama is going the extra mile for companies. The American Jobs Act offers a more generous payroll tax holiday for companies than for individuals. Businesses will receive a 50 percent reduction — paying 3.1 percent — on the first $5 million of payroll. (The theory: big businesses have plenty of cash and small businesses can use the help.) In addition, companies that add new positions will be exempt from all payroll taxes for the first year. That's a significant cut. Businesses will also be able to take advantage of accelerated depreciation, and tax credits for hiring veterans and the long-term unemployed. (more)