Obama’s Jobs Bill: Ready to Take a Chance Again?

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The American Jobs Act, outlined by President Obama in his speech last Thursday evening, has something for everyone: tax cuts, new infrastructure spending, changes to the unemployment system, and a chance for homeowners to refinance their mortgages at a lower rate. But there are key questions as well. In particular, which parts of the president’s plan are most relevant to nonprofits, and what effect are they likely to have on the sector?

What else is on the Hill?

Democrats in Congress have proposed various other measures to deal with the unemployment crisis. Read about them here.

Having just received a 199-page text of a proposed $447-billion “American Jobs Act” that the President will apparently formally submit to Congress, we can use the White House’s two-page summary of the Act (PDF), the 65-page slideshow designed to accompany the President’s speech (view a video of the speech alongside the slideshow here), and the text of the president’s speech itself to evaluate his jobs-creating proposals from a nonprofit perspective.

Obama’s track record with nonprofits

First, though, let’s look back at Obama’s record involving nonprofits in his economic policies. The Obama White House, like its predecessors, has sometimes seemed under-informed as to the job-creating capacity of the nonprofit sector. The sector as a whole contains 510,000 establishments that employ more than 14.4 million full- and part-time employees.[1] Lester Salamon’s research indicates that nonprofit employment increased 2.6 percent in 2008, 1.2 percent in 2009, and 0.8 percent in 2010 compared to for-profit employment which fell over that period, including a decline of 0.9 percent in 2010. Back in 2009 and 2010 when the American Reinvestment and Recovery Act, a.k.a. ARRA or “The Stimulus,” was chugging on all cylinders, many businesses took their tax breaks and sat on the money. In contrast, nonprofits leveraged the spending in ARRA to actually create jobs, notably in areas such as weatherization, Early Head Start, Head Start, and homelessness prevention.

Despite this excellent record of generating employment, the nonprofit sector was a bit underrepresented among those in attendance in the First Lady’s box at the president’s jobs speech. Among the 25 or so people joining Michelle Obama, there were only four with any discernible connection to the nonprofit sector: Gracey Ibarra, a Minnesota woman who enrolled in a Certified Nursing Assistant program with help from her local Community Action agency; Dannie and Sabrina Mangrum, a Maryland couple who are working with Lutheran Social Services to adopt three foster children; and Steve Case, former CEO of AOL, current chair of an eponymous foundation, and founder of the Startup America Partnership, an “independent [though it was announced at the White House] private-sector coalition” with a mission “to help entrepreneurs start and scale companies across the U.S.”

So given that less-than-reassuring backdrop, what might be of interest to nonprofits in the president’s jobs package?

1. It’s big—as in “has lots of moving parts”

The American Jobs Act will be a mega-bill, like ARRA for economic stimulus in 2009 and the Affordable Care Act (ACA) for health insurance reform in 2010. President Obama seems to prefer to try to pass one big omnibus bill as opposed to following the advice of Newt Gingrich on health care reform and now Eric Cantor on jobs: Pull it apart and bring the various pieces up for separate votes. It’s a “nothing is agreed to until everything is agreed to” strategy, which makes it difficult for any given interest group—including nonprofits—to oppose the whole package as long as it includes something that the interest group wants badly enough. It’s an understandable strategy from a conciliator president whose party barely controls one house of Congress—and is apparently powerless to fight the filibuster in the other.

2. As with ARRA, lots of tax incentives

Remember that the 2009 stimulus was not $787 billion of spending. More than half of the bill was composed of tax credits for businesses and employees. Same here. The tax incentives in the jobs bill include cutting the business share of the payroll tax in half on the first $5 million of payroll, a full payroll-tax holiday for businesses that add workers or boost wages, a “Returning Heroes” tax credit to encourage the hiring of veterans, a $4,000 tax credit for businesses that hire long-term unemployed workers, and an extension of 100-percent expensing on the purchase of new capital equipment. For wage-earners, there is an expansion of the workers’ payroll tax cut from last year.

Just as with ARRA, economic experts are neatly divided on whether these tax incentives will actually put Americans back to work. One difference this time around is that big corporations have turned the healthy profits of the past few years into mounds of cash—$2 trillion in all—that they are simply sitting on. These corporations are so skittish about the economy that they actually prefer to earn rock-bottom—and in some cases negative—rates of interest by holding cash instead of risking it by investing in plant and equipment or hiring more workers.

The jury is out as to whether these proposed tax cuts will actually stimulate demand and lower the cost of business expansion enough to get corporations to put their money into creating jobs. In any case, the tax cuts are a likely prerequisite to getting the business community to come on board with the plan—whether they actually will is another story.

3. But will tax cuts really help nonprofits?

We’ve gone through this before. As part of the ACA, the White House proposed income-tax credits to help small businesses pay for health insurance. But then the president’s team seemed stunned to discover that income-tax incentives don’t help nonprofits, because nonprofits don’t pay income taxes. At that point, legislators like Rep. Betty McCollum (D-Minnesota) in the House and John Kerry (D-Massachusetts) in the Senate were able to fashion an amendment to allow nonprofits to take advantage of the tax credits to reduce the employer’s portion of the payroll tax, albeit at a lower level than the benefit afforded to for-profit firms. While nonprofits will be able to benefit from the payroll-tax-reduction portions of the President’s proposal, the tax-credit portions basically leave nonprofits on the sidelines. The McCollums and Kerrys in Congress will probably have to gear up once again to make the American Jobs Act work for nonprofits.

There is other language in Obama’s proposals for small-business job creation that raises questions about the level of Administration awareness of the nonprofit sector. As part of the president’s plan for enhancing small-business capital formation, there is the promise that “the Administration will soon announce a plan to accelerate government payments to small contractors to help put money in their hands faster.” We wonder: Does that include nonprofit contractors as well? Will the Administration work on enforcing prompt payment provisions in federal programs—including programs that pass federal funds through state and local governments—to ensure that nonprofits don’t have to cover the costs of slow reimbursements and contract payments?

4. Two new program initiatives

Are there any parts of the American Jobs Act that appear to take advantage of the unique skill sets and missions of nonprofits? Two stand out. First, the President proposes a $15-billion “Project Rebuild” to “put people to work rehabilitating homes, businesses, and communities, leveraging private capital and scaling land banks and other public-private collaborations.” Second, there is a $5-billion “Pathways Back to Work” program

to provide hundreds of thousands of low-income youth and adults with opportunities to work and to achieve needed training with three components . . . summer and year-round jobs for youth . . . subsidized employment opportunities for low-income individuals who are unemployed . . . and promising and innovative local work-based job and training initiatives to place low-income adults and youths in jobs quickly.

There is also a third program component of sorts that might be of interest to nonprofits. The plan includes a proposal to allow states increased flexibility in the use of Unemployment Insurance (UI) funds to design new programs for assisting the long-term unemployed and to support or expand “Bridge to Work” programs such as Georgia Works or Opportunity North Carolina. These programs allow the unemployed to take advantage of “voluntary work” or work-based training while receiving UI.

If there is a lesson to be learned from the ARRA experience however, nonprofits must be at the table when and if these new job-creation initiatives are designed. Let’s not make the new jobs act a repeat of ARRA, when nonprofits had to solve problems on the fly, making under-designed or inappropriately structured programs work as best they could.

5. Will the Super Committee really agree to pay for it? And if so, at what cost?

The president said that this package is going to be “fully paid for,” calling on the bipartisan Super Committee that was created as a result of August’s debt-ceiling deal to add another $447 billion to the more than $1 trillion in spending cuts and tax hikes that it has already been tasked with finding. We hope and expect that by “fully paid for,” Obama means that it will be paid back in the long term, as a result of increased economic growth and employment, rather than in the short term, as a result of shifting money from other needed services. After all, the point of a fiscal boost is to inject new money into the economy, not simply move it from one pot to another. Here is another fear: Even the president has previously called for cuts that would devastate social programs such as the Community Services Block Grant. The Super Committee is all but assured of slashing away at domestic spending. Will Obama’s jobs act end up being a mix of giving with one hand and taking away with the other?

6. It has something for everyone—to love and to hate

As the Washington Post’s Ezra Klein noted last week, “In much the same way that everyone can find something to like in this plan, everyone can find something to dislike.” Some parts of the program aren’t necessarily going to get the support of the agencies charged with implementing or at least overseeing them. For example, the Federal Housing Finance Agency (FHFA) may not like the component of the plan that incentivizes banks (and presumably the Federal Housing Administration, Fannie Mae, and Freddie Mac) to make it easier for homeowners with “underwater mortgages” (that is, the mortgages are worth more than the homes) to refinance by taking advantage of today’s low mortgage interest rates. (FHFA oversees the financial health of Fannie and Freddie and is sensitive about anything that might cost them additional lost income.) Presumably, Fed Chairman Ben Bernanke will also have a voice on the President’s proposal, though he has already indicated an openness to more stimulus given the state of the economy. (Bernanke has said that the Federal Reserve possesses a “range of tools” that it might use to help stimulate the economy, but he has been reluctant to be specific in advance of the Fed’s next Open Market Committee meeting on September 21 and 22.) Obviously, the president hopes that these various non-legislative actors, along with a sufficient number of Republicans in Congress, will find enough in the package to warrant support.

The big question: Will it work?

Will it actually make the economy better? It may be much like ARRA on that score: Better compared to what? Compared to the ideal plan, or compared to doing nothing? In August, the Washington Post’s Dylan Matthews compiled nine economic studies on ARRA’s impact and reported that seven of them found that ARRA did work to create jobs and limit unemployment. It’s hard to deny that unemployment is still inexcusably high and the “recovery” is barely visible. But Matthews’ overall conclusion is that without the stimulus, things would now be even worse.

As for Obama’s latest fiscal salvo, the Post’s Klein tweeted yesterday that forecasting firm Macroeconomic Advisers predicted that the American Jobs Act would boost growth by 1.25 percent in 2012 and create 1.3 million additional jobs. That’s nothing to sneeze at. But it remains just a forecast. Whether the American Jobs Act helps prevent more Americans from sinking deeper into jobless poverty obviously depends on the final shape of the package.

The need for presidential leadership

What’s clearer is the fact that without strong leadership from President Obama, the American Jobs Act will wither on the vine, surviving for a couple of nano-seconds before both parties in Congress go their own way to prepare for the 2012 elections. Although he gave a vigorous speech last Thursday, Obama will have to do more than that. Some observers want him to conjure up the ghost of FDR and rail against the “malefactors of great wealth,” and “welcome their hatred.” Others long for some LBJ-style legislative arm-twisting in the well of the Senate—the “full Johnson” as it was known, when LBJ would get his way by force of will alone. Still others foresee a Trumanesque re-election campaign in 2012 against a “do-nothing Congress.” We suspect that in the end, Obama will chart his own course—something that is admittedly maddening for some of us who find his cool affect and willingness to compromise less than inspiring. What’s fairly clear at this point is that Obama must see the speech and his Jobs Act as something more than a way to launch his 2012 campaign. If the president truly wants to see this package pass, he will have to deploy some previously-unseen political muscle to move his allies and opponents on Capitol Hill to recognize that a second dose of fiscal “juice” is needed in order to improve the jobs situation. If he fails at that task, the American Jobs Act—and more than likely, his 2012 re-election campaign—will fail as well.

Nonprofits must be at the table

Regardless of whether it is cynical or sincere—or a little bit of both—the American Jobs Act must do a better job than ARRA did in involving and including nonprofits of all stripes in its implementation. After all, it is the nonprofit sector that is closest and best able to respond to the needs and challenges of households facing unemployment and underemployment. To that end, as the president’s jobs plan moves through Congress, we urge the sector to weigh in, speak up, and remember our core function of public-policy advocacy.

[1] Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends, 2009 Medical Expenditure Survey–Insurance Component, Table I.A.1 (2009) (for number of establishments) and Table I.B.1 (2009) (for number of employees). PDF