President’s Jobs Plan and Arizona

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ASU Economist Dennis Hoffman shares his views on how President Obama’s proposed American Jobs Act of 2011 would impact Arizona.

Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons.

Ted Simons: President Obama's American jobs act of 2011 is a $447 billion package of tax cuts and new spending intended to put the unemployed back to work. Here to tell us about the plan and how it would affect Arizona is ASU economist Dennis Hoffman from the university's W.P. Carey School of Business. Good to see you again.
Dennis Hoffman: Great to be here, Ted.

Ted Simons: Alright Dennis, this is called an ambitious plan. Ambitious?

Dennis Hoffman: Yeah, I think this is reasonably ambitious and something needs to be ambitious at this point in the business cycle. We have to have some perspective before we talk about the plan, the details of the plan, the rationale and all of that kind of thing. You know, this is by far the worst recession of the post-world period. It follows a wealth shock. A shock that hit the economy that is by most measures worse than the shock that hit the economy in 1929. So the response the private sector is simply unrecognizable to most people that have some expectations about what the economy should be doing, almost four years after the prior peak from the prior recession. Consumption is flat. Post-war recessions are supposed to be up 15%. Investments down 15%. Post-war recessions is up 15%. Most of that investment, by the way, is residential housing.

Ted Simons: So, no one is buying, no one is investing; people are sitting.
Dennis Hoffman: This economy needs a kick start. And it's either going to have to come from within or the confidence from within or going to have to come from a bit of a jolt from the federal government and that's what the jobs plan is evidently intended to do.
Ted Simons: Well, let's talk about some parts of this plan. Starting with the payroll tax cuts - would cost $175 semi-billion.
Dennis Hoffman: That's correct.
Ted Simons: It goes to social security, that's a concern, but does it make sense? Is it a good move?

Dennis Hoffman: Well, we're told that one of the reasons that small businesses and businesses in general aren't hiring is the cost of fringe benefits and costs to hire and this is an attempt to go directly at that the cost on one side, the employer's side and, of course, on the employee side, it's designed to put a few more bucks back in workers' pockets after they get paycheck.

Ted Simons: On the employee side though, the argument is - a temporary tax rebate and people don't make large investments on temporary corrections and solutions. Is that a viable or fair?

Dennis Hoffman: I think it's a fair thing so discuss. The contrarians are saying well, people won't make permanent expenditure decisions on transitory income. I've heard some say they will buy products made in foreign countries and the ultimate stimulus goes to foreign countries. So there's room for debate. I think part this is symbolic. You know if people get little more money in their take-home paycheck, hopefully, they feel better and the confidence improves and the flow of dollars from one agent to the other begins to accelerate. And that's what's needed.

Ted Simons: And as far as small businesses are concerned, payroll tax cuts to small businesses, I guess for the first $5 million in wages and exempt from the entire tax if your payroll is up $50 million from last year. Are these incentives going to work?

Dennis Hoffman: Well, that's the hope. Again what we're trying to do is kick-start the economy. Build confidence off levels that are unprecedented low levels. I think it has some chance, if people could rally around it and that's a big if right now. Ted, we're going into the election season and all of the banter about the election and whether there's political motivations in the plan, yada yada, yada. You know I am an economist. I try to judge the plan to be purely on its merits but it's very, very clear this economy is wounded deeply by an erosion of wealth and what's going to bring us out is the restoration of confidence. The market can do it on its own,
but that clearly is going to take years and years as we've seen.
Ted Simons: And let's go to the Republican criticism of the payroll tax cuts. They're saying who cares about the payroll tax cuts if tax rates for the wealthy, for the job creators, as they're called, if they go up? Who cares about the other stuff if that stuff goes up?

Dennis Hoffman: Right, the issue, Ted, that we're hearing in the debate is that the reason businesses aren't hiring is that they're uncertain, don't know the future course of their tax burden, don't know about healthcare costs and they are worrying about government regulation. I think it's a fair argument. But I think we have to add, if we're going to talk about what businesses are worried about and what might be holding them back, I bet if you got a group of businesses in here and polled them, yeah, there will be some worried about the future tax burden and future cost of healthcare. But what about those worrying about where the next government contract is coming from. Think about Arizona businesses. We're told this economy will grow and flourish, all we have to do is cut the federal government. What do we cut? Raytheon or Boeing? What do we do? Do we eliminate payments for Medicare or Medicaid or do we reduce them and squeeze those doctors even more? Those are private sector jobs. What do you want to do? Eliminate direct payments for transportation and put private sector construction workers in a sector that's beleaguered right now? There has been to be rationale and balance here. I understand taxes are a negative by themselves. I don't hear anybody talking about raising taxes today. I do hear about raising taxes in the future to try to get our fiscal house in order and match that with entitlement cuts. But you've got to think about the impact of cutting government and how that's going to play out if that's the road we choose to tread.

Ted Simons: With that in mind, the plan talks about 35 odd billion dollars to hire teachers and cops and the aid to states is a quick, kick in the you know what.

Dennis Hoffman: Absolutely. If you look at the recessions of '75 and '82, people went to state and local governments, they left the private sector and went to state and local governments and the employment trajectory in '75 and '82 went up. It was a good buffer against a long drawn-out recession. The absolutely opposite is happening this time. State and local governments have been devastated by this at the very time, Ted, when they're inundated for demand for public services.

Ted Simons: The idea a bridges to work, work sharing, of course, you're out of work and running out of benefits, the government will continue with the benefits but you must do unpaid work that provides on the job training. Based on something in Georgia. Is an American worker going go for something like that?

Dennis Hoffman: I think some American workers are ready to try anything. There are incentives to hire the long-term unemployed. Nobody wants to hire anyone who's been out of work for a extended period. Now there are tax credits and a quasi internship program as you've described. Many businesses are saying they don't have the wherewithal to train people. If there can be on-the-job training that is promoted or subsidized by government in this fashion, hey, let's try it. We've got long-term unemployed that's been a really, really big challenge for this economy. Why not give it a try?

Ted Simons: Moody's, the chief economist said this plan increases growth by 2% next year, maybe two million additional jobs knowledge right. Makes sense?

Dennis Hoffman: I think we'll do deeper analysis out of W.P. Carey, but preliminarily, 40,000, 50,000 jobs for Arizona. You know, you have -- let me see, $600 million for transportation infrastructure, $544 million for school infrastructure and repair. 484 to refurbish foreclosed homes, some money for community colleges, $625 million for teachers and first responders. Trying to get a jolt to this economy. So shave a percent off the unemployment rate is about what those numbers would translate to and do the same in Arizona.
Ted Simons: We've got 30 seconds left. Critics say this does not address structural changes. Valid?

Dennis Hoffman: Well, look, I think we do have long run structural challenges. We need a grand bargain and I think we came close in mid July. At least the rhetoric suggested we came close. I think we need to put the cards on the table. I think I have said this before, tax reform and entitlement reform. Those are long run problems. We have an immediate crisis; the jobs plan goes to the immediate.

Ted Simons: Dennis, good to have you here.

Dennis Hoffman: Good to be here, Ted, thanks.

Dennis Hoffman:ASU Economist;

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