Obama’s Latest Economic Proposal – The American Jobs Act

The American Jobs Act was Obama’s response to an economy grappling with stubborn unemployment, 9.1%, a figure not seen since the early ’80s, and around 14 million jobless Americans. GDP growth limped along at 1.8% for the year, with Q3 revised down to 2.0% (from 2.5%). It was a tough moment, and Obama’s plan aimed to stimulate hiring, boost small businesses, and help long-term unemployed workers.

The Act was a mix of tax incentives, spending, and worker programs. Job creation, business relief, payroll tax cuts, and re-employing the long-term jobless got top billing. The goal? Boost employment, keep public services staffed, and strengthen labor markets, all without adding to Uncle Sam’s tab.

Which Provisions Targeted Job Creation Directly?

The Act’s heartbeat was its approach to boosting hiring, tax incentives and direct funding, both public and private sectors.

Veterans faced joblessness rates far above the national average in states like Texas (7%) and California (6%). The Act targeted this by offering tax credits for businesses hiring vets. This wasn’t untested; similar programs had worked with contractors like Lockheed Martin before.

With $10 billion earmarked, teachers, cops, and firefighters stayed employed in cash-strapped states like Ohio and Illinois. Money flowed through state education agencies, with the Education Department overseeing and local school boards coordinating efforts.

The Act also funded rehabbing foreclosed homes and vacant commercial buildings, $1.5 billion was set aside for this. HUD, Fannie Mae, and Freddie Mac teamed up to find target properties. Detroit and Las Vegas saw projects to turn abandoned buildings into affordable housing or community centers.

Rounding out the package was a $50 billion infrastructure plan: schools, roads, rails, airports, all got upgrades. Partners included the Federal Highway Administration (funneled $3 billion in 2011 for air traffic control modernization) and the FAA ($2 billion more).

Let’s say you’re a small business owner in Atlanta: credit score 620, $1.8 million annual payroll, seeking $450k capital to hire five folks by June ’12. The proposed payroll tax relief could help, 50% cut on the first $5m saves $112.5k, enough for two full-time salaries without extra debt. But it’s only a boost if you’re already hiring or planning to.

How Did It Support Small Businesses?

Small businesses sat at the center of this proposal. They make up 98% of U.S. companies, per the Small Business Administration. In 2011, though, they were fighting on three fronts: tight credit, high payroll costs, and weak customer demand.

The payroll tax cut, a 50% reduction on the first $5 million in payroll, applied across the board, whether you ran a salon in Denver or a tech startup in San Diego. A typical small business carried $1.2 million in payroll in 2011, so the cut translated to roughly $30,000 in annual savings. Scale that up to a $3 million payroll and you’re looking at $750,000 saved, more than enough to bring on two new hires.

Businesses that added workers during 2012 could wipe out payroll taxes entirely for that year, a genuinely strong incentive. A small manufacturing firm in New Jersey, say, could bring on five new employees and pay zero federal payroll tax on them for twelve months. That’s roughly $7,000 saved per employee, money that could go toward training or equipment instead.

Credit access got its own fix. The Federal Deposit Insurance Corporation and the Federal Reserve were directed to work with banks like Chase, Wells Fargo, and SoFi on loosening lending standards for small firms. Loan approval times had stretched to 47 days in 2011, up from just 23 days in 2007, and the Fed reported that 43% of small business owners had been turned down for credit in the prior year, up sharply from 28% in 2009.

This piece drew its share of scrutiny too. Critics pointed out that without tighter underwriting rules, defaults could climb. Experian‘s business credit data showed 62% of small business loans in 2011 carried a debt-to-income ratio above 50%, compared with 38% in 2007. The Act never mandated new underwriting standards, it just encouraged banks to do better.

Skip this one if your business has a rocky payment history or heavy debt. These credit provisions were built for firms with solid fundamentals already in place. A DTI above 60%, or three or more past-due payments in the last two years, means faster lending probably isn’t in the cards, new incentives or not.

What Was the Payroll Tax Cut’s Impact?

The most visible part of the Act was its payroll tax cut, building on a short-lived 2011 holiday that sliced two points off the Social Security tax (6.2% → 4.2%).

For 2012, the Act proposed a massive 50% reduction, dropping the rate to 3.1%. A $50k earner got an extra $1,500 annually; typical American workers pocketed about $1,260 more.

The Trust Fund wouldn’t take a hit, thanks to temporary revenue restructuring. The Social Security Advisory Board confirmed it could absorb the shortfall for two years without touching benefits.

Businesses also benefited: that Florida restaurant chain could add a second shift with no labor cost increase.

But there were limits: incomes over $110,100 didn’t qualify. While most Americans earned less than this threshold, high earners paid the full rate. Despite fixes for short-term solvency, Social Security’s long-term outlook was unchanged, still projected to run dry by 2033.

How Did It Help Long-Term Unemployed Workers Return to Work?

Nearly 40% of unemployed Americans had been jobless for six months or more by 2011. That’s not a temporary dip, it’s a structural problem, and the Act treated it that way.

Unemployment insurance got extended by up to 12 months for people who’d already used up their initial 26 weeks. States could redirect unemployment funds toward “bridge to work” programs, covering things like on-the-job training, volunteer placements, or short-term apprenticeships.

Take a 45-year-old former factory worker in Ohio who enrolls at a local community college to learn welding. The state covers the training cost, and the worker gets a stipend, up to $500 a month, while enrolled. Minnesota and Washington had run similar programs already, with participation rates of 68% and 72% respectively.

Companies that hired long-term unemployed workers could also claim tax credits, up to $3,000 for someone jobless 18 months or longer, about 10% of that worker’s first-year salary. The idea was to offset the perceived risk of hiring someone with a gap on their resume. A tech firm in Austin could hire a 40-year-old developer with a layoff history and still pocket $6,000 in tax savings.

Entrepreneurship got a boost as well: $1 billion in grants to help unemployed workers launch small businesses, distributed through a competitive process run by the Small Business Administration. Only 3% of SBA loans in 2011 had gone to former unemployed workers, and this was meant to shift that number.

None of this came without strings attached. Running these programs took real administrative muscle, and states like Mississippi and Nevada simply didn’t have the infrastructure for large-scale training rollouts. The Consumer Financial Protection Bureau flagged the risk that, without tighter oversight, some funds could get misused or diverted elsewhere.

Say you’re long-term unemployed in Nevada, 640 credit score, no prior business experience. The $1 billion startup grant pool probably won’t do much for you. SBA’s selection process tended to favor applicants with self-employment history or a fleshed-out business plan, and a coin-flip odds of approval isn’t something to bank on. Training in a high-demand trade, HVAC repair or IT support, through the unemployment extension is the more reliable path.

What Were the Major Criticisms?

Not everyone bought into this plan. Thomas Masterson, Research Scholar at the Levy Economics Institute of Bard College, described it as “equal parts weak tea and bitter pill,” arguing that “as a job creation proposal it does too little, too ineffectively.”

Timing was the core problem in his critique. Infrastructure and training spending sounds good on paper, but projects like these typically take 18 to 24 months to get off the ground. With 14 million people unemployed right now, a two-year wait for results felt like too little too late.

Deficit concerns worried others just as much. The Congressional Budget Office projected the full Act would tack on $130 billion to the national debt over ten years. USTR kept emphasizing deficit neutrality, but CBO’s own numbers showed the payroll tax cut alone would cost $300 billion over a decade. The Senate Budget Committee called the funding mechanisms “fragile,” noting they depended heavily on future economic growth that wasn’t guaranteed.

Republicans pushed back hard, particularly on the $10 billion earmarked for public sector layoffs, citing worries about state-level debt. The House Republican Conference claimed the Act “favored government workers over private sector innovators.”

Some Democrats had reservations too. They liked the payroll tax cut and the unemployment extension well enough, but the long-term cost of infrastructure and training programs gave them pause. The Joint Economic Committee called the Act “well-intentioned” while warning that its “fiscal footprint was too large for current budget constraints.”

Frequently Asked Questions

What was the unemployment rate in September 2011?

The unemployment rate was 9.1 percent, with 14.0 million people unemployed, according to the U.S. Bureau of Labor Statistics.

How much would a $50,000 earner save under the payroll tax cut?

A worker earning $50,000 annually would receive a $1,500 tax reduction due to the 50% cut in payroll taxes.

Did the Act affect Social Security funding?

No. The Act’s payroll tax cut was funded through temporary adjustments to the Social Security Trust Fund, not by reducing future benefits.

What was the real GDP growth rate for 2011?

Real GDP growth for 2011 was revised to 1.8 percent, with third-quarter growth at 2.0 percent.

How many small businesses would benefit from the payroll tax cut?

The Act would benefit 98% of U.S. companies, as the $5 million payroll threshold covered most small and medium-sized enterprises.

Could small businesses eliminate payroll taxes entirely?

Yes. If a small business hired new employees in 2012, it could eliminate payroll taxes on that new hiring for the year.

What was the average time to approve a small business loan in 2011?

The average approval time was 47 days, up from 23 days in 2007, due to tighter credit standards.

How much money was allocated for rehabilitating foreclosed homes?

The Act allocated $1.5 billion for rehabilitating foreclosed homes and vacant commercial buildings.

Which states faced the highest unemployment in 2011?

States like California, Texas, and Nevada had unemployment rates above the national average of 9.1%.

Who opposed the American Jobs Act?

Republicans in Congress opposed many provisions, especially the funding for public sector layoffs. Some Democrats were also cautious due to deficit concerns.