The Lookout

With GOP taking piecemeal stance on Obama’s jobs plan, what’s the likely impact on the economy?

Zachary Roth
The Lookout

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House Majority Leader Eric Cantor. AP Photo/J. Scott Applewhite

Five days after President Obama laid out his jobs ideas in a speech before Congress, the Republican response is beginning to take shape. And that response, more than any of the specific proposals in the president's plan, could be the key factor in determining the fate of the economy.

In recent days, Republicans have made it clear that they intend to take a piecemeal approach to Obama's $447 billion package--breaking it up into its component parts, and then working to pass only those parts they favor.

"I'm hoping to peel some of these out of the package, to put them on the floor, to see what we can get done as soon as possible," Rep. Eric Cantor, the number two Republican in the House said Thursday. President Obama has said he wants his proposal passed in its entirety, but that he won't veto items passed individually.

So, which pieces are likely to win GOP support, and which aren't? We don't know for sure yet, and much still remains to be negotiated. But based on preliminary responses from the party's leaders, as well as their pre-existing positions, here's what Republicans look likely to support, in one form or another:

• A payroll tax cut for employers, designed to spur hiring
• Expedited approval of construction permits for infrastructure projects
• A reduction in burdensome federal regulations that stymie businesses
• A program that allows unemployed workers to continue receiving jobless benefits while training with potential employers

Here's what they'll likely oppose:

• An "infrastructure bank" designed to encourage private investment in road and rail projects
• A proposal to fund repairs and renovations at 35,000 public schools
• Raising taxes on those making $200,000 or more (or couples making $250,000 or more) by limiting itemized deductions and certain other exemptions, in order to pay for the package

And here's what's still very much up in the air:

• Extending the Social Security payroll tax cut for employees, which is scheduled to expire at the end of the year
• An additional extension of unemployment benefits, also scheduled to expire at year's end

So what would it mean for the economy if we ended up with a final package--whether one bill, or several separate ones--along these lines?

Many of the provisions Republicans support--streamlining the permitting process, cutting regulations, and the job-training program--don't figure to have a massive impact on growth. The exception is the employer payroll tax cut, which is worth $65 billion. By contrast, overall spending in the package, much of which Republican lawmakers oppose, accounts for around $194 billion of the $477 billion total; the remaining $253 billion in the package is tax cuts.

And not all tax cuts seem to be created equal, to judge by early GOP positions on the Obama package. Going forward, the crucial question will be whether Republicans ultimately agree to extend the $175 billion payroll tax cut for employees--an issue on which the party appears divided. If congressional Republicans end up blocking the employee tax cut, the Obama bill's overall effect on the economy would likely be relatively small. But if the GOP backs the employee cut, the total package might still be big enough--around $250-300 billion--to produce about 2 percentage points of GDP growth, based on economists' views about the level of spending required for growth.

That would be a significant boost. Indeed, it's right around what economists had said would be produced by Obama's full plan, after it was first reported, inaccurately, as costing $300 billion rather than $447 billion. But with job growth non-existent last month, and the economy threatening to slide back into recession, even a jolt on this scale may not be enough to generate enough momentum for a sustained recovery.

Some supporters of the president suggest that the GOP's skepticism about extending the employee payroll tax cut suggests they're cynically trying to make sure the package isn't too effective, since Obama would likely reap the political benefits of an improving economy. After all, such observers note, since when do Republicans oppose tax cuts? But Republican lawmakers and strategists have countered that  they simply don't see the cut as a smart way to create long-term growth, and some say it could threaten funding for Social Security.

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