In September 2011, President Obama introduced a 447 billion dollar package of tax cuts and new government spending in an attempt to create more jobs and stimulate the economy. Although this package would help stimulate the economy, the government must find a way to pay for the increase in government spending. As a result, the “Buffett” rule was included in the proposal and this rule would increase taxes on millionaires. This package is equivalent to almost 3% of the GDP and therefore should have a large impact on the 2012 economy[1].
By decreasing taxes and increasing government spending, President Obama is trying to increase the aggregate demand. Government spending increases the aggregate demand directly, while tax cuts take an indirect route by affecting consumption. Therefore, by using this expansionary fiscal policy, aggregate demand increases. Since aggregate demand increases, price levels increase, thus increasing the inflation rate. The increase in aggregate demand should lead to an increase in production, so firms will create jobs, and as shown on a Phillips curve graph, when inflation increases along the curve, unemployment decreases. Since unemployment decreases, the current proposal should be effective in generating new jobs and stimulating the economy. Jobs are also created because the government spending is being used primarily on public works, such as highways and infrastructure. This type of spending directly increases jobs, because people are needed in order to build these structures. However, there are also negatives to Obama’s job proposals. Although in theory the decrease in taxes will lead to an increase in demand and thus increase jobs, firms might still be hesitant. Because of the recent recession, the future economic conditions, such as real GDP growth, are uncertain. Since firms cannot predict future economic conditions, they will be more likely to save their tax cut dollars than hire more workers[2]. As a result, Obama’s job proposal plan may not be as effective as planned.
Congress should pass Obama’s job proposal, because in order to increase jobs, the government must increase aggregate demand. Although, as mentioned above, the tax cuts might prove to be ineffective, the government spending will nonetheless create some jobs and overall, will help improve the economic conditions in the United States. Since this proposal should create jobs, Congress should pass the bill.
Sources
1. “Breaking Down President Obama’s Jobs Plan : Innovation :: American Express OPEN Forum”, n.d. http://www.openforum.com/articles/breaking-down-president-obamas-jobs-plan.
2. Cooper, Helene. "Obama Offers Plan to Cut Deficit by Over $3 Trillion." Obama Deficit Plan Cuts Entitlements and Raises Tax on Rich. New York Times, 18 Sept. 2011. Web. 12 Oct. 2011.
3. Landler, Mark. "Obama Challenges Congress on Job Plan." Obama, in Speech to Congress, Offers Plan for Economy. New York Times, 8 Sept. 2011. Web. 12 Oct. 2011.
4. Izzo, Phil. "Economists React: Gauging Impact of Obama Jobs Proposal." http://blogs.wsj.com/economics/2011/09/08/economists-react-gauging-impact-of-obama-jobs-proposal/, 8 Sept. 2011. Web. 12 Oct. 2011.
[1] Phil Izzo, "Economists React: Gauging Impact of Obama Jobs Proposal." http://blogs.wsj.com/economics/2011/09/08/economists-react-gauging-impact-of-obama-jobs-proposal/, 8 Sept. 2011. Web. 12 Oct. 2011.
[2] “Breaking Down President Obama’s Jobs Plan : Innovation :: American Express OPEN Forum.”
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