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Obama Goes Big — and Political — with $450 Billion Stimulus Plan

President Obama is finally laying out his latest plan to boost economic growth.  The particulars of the American Jobs Act are important, and meaningful for an economy laboring under slow growth.

The administration believes the package, worth about $450 billion, is good economics. The centerpiece: extending and expanding the existing payroll tax holiday for another year. Instead of paying 4.2 percent on the first $106,800 of income, Americans will only pay 3.2 percent. (The usual rate is 6.2 percent) There are also tax cuts for business, funds for infrastructure and states, and money to support mortgage refinancing.

But, as a senior administration official described it to me this afternoon, the American jobs Act was also designed to be good politics. And with just 14 months until the 2012 presidential elections, the political calculus is almost as significant as the economic one.

President Obama frequently anticipates Republican criticism of his proposals by bargaining with himself instead of making declarative proposals. In this instance, he's anticipating the criticism — any measure will cost too much and add to the already large deficit! — by pairing the legislation with specific offsets and reforms, like the closing of corporate tax loopholes, and higher taxes on the wealthy. The plan he presents will be deficit neutral. What's more, ten days from now, he'll go to the Congressional deficit supercommittee and present plans on larger long-term fiscal reforms.

Many business groups objected to the payroll tax holiday on the grounds that it benefitted employees and did nothing for struggling employers. This time, Obama is going the extra mile for companies. The American Jobs Act offers a more generous payroll tax holiday for companies than for individuals. Businesses will receive a 50 percent reduction — paying 3.1 percent — on the first $5 million of payroll. (The theory: big businesses have plenty of cash and small businesses can use the help.) In addition, companies that add new positions will be exempt from all payroll taxes for the first year. That's a significant cut. Businesses will also be able to take advantage of accelerated depreciation, and tax credits for hiring veterans and the long-term unemployed.

As for direct spending, Obama will explicitly endorse the creation of an infrastructure bank, and propose substantial funds for surface transportation, school construction and renovation, and the rehabilitation of homes in neighborhoods wracked by foreclosures. Total: $105 billion.

Here's the rub. This all requires legislation, which means it requires the active cooperation of some House Republicans and the permission of Senate Republicans, who frequently filibuster legislation favored by the Senate Democratic majority.

The administration didn't present the plans to Republicans in advance. But since early this spring, the White House and Republicans have been negotiating about budget issues. And the administration feels like it knows which buttons to push. It has made a point of including ideas and proposals that Republicans - -including Republicans in leadership positions — have explicitly supported. House Majority Leader Eric Cantor has spoken in favor of a payroll tax cut for employers, and has been a stickler for offsetting new spending with cuts elsewhere. The administration official referred to the proposed infrastructure bank as the Kerry-Hutchinson infrastructure bank, as in Democratic Senator John Kerry and Texas Republican Senator Kay Bailey Hutchinson.

What's more, they have devised policies that influential Republican-friendly groups, like the Chamber of Commerce, the Business Roundtable, and the National Federation of Independent Business can get behind. Business lobbyists are likely to aid in the effort to pass new tax cuts for business as well as for infrastructure spending.

(The most controversial measure is likely to be the one that doesn't require legislation. Obama will endorse expanded mortgage refinancing — essentially suggesting that Fannie Mae and Freddie Mac, which are now formally owned by the government, make it easier for Americans to refinance their homes, even if they have high loan to value ratios or are underwater.)

These measures are designed to stimulate the economy. But they're also designed to put Congressional Republicans on the spot. Are they interested in moving the economy forward by passing measures that they and their business allies have favored and advocated? Or are they so intent on making President Obama a failure that they will refuse deficit-neutral goodies they've long favored?

The answer isn't a no-brainer. According to administration officials, during the debt-ceiling and budget negotiations, Republican leadership conceded that the dominant faction of the House Republican caucus wasn't interested in measures that would make the president look good by improving the economy. And time and again over the last three years, moderate Republicans have walked away from measures they previously supported — on cap-and-trade, an individual mandate for health insurance, immigration reform — simply because President Obama was for them. The White House doesn't have any greater faith in its Republican interlocutors on the Hill than it did on the spring. But it recognizes that the President has to lay out what he's for and then fight for it.

 Team Obama believes it has put forward a plan that few people on the Hill will be able to oppose in principal. It wants Americans to draw the conclusion that the only reason Republicans would vote the plan down would be a political one. And if the voting public doesn't reach that conclusion on its own, they'll be happy to point it out in the coming months.

How will this play out? Like it usually does. The Senate Democratic majority will embrace it enthusiastically, and the House Democrats will do so with less enthusiasm. Senate Majority leader Mitch McConnell will reject it, and virtually all the Senate Republicans will line up behind him in a filibuster threat. The Tea Party crowd in the House will loudly announce its opposition and throw back a non-negotiable, unacceptable alternative. The business groups will shy away from the fight if enough members of the Republican leadership express opposition. As was the case with the debt ceiling, it will come down to the willingness of House Speaker John Boehner and a few Republicans to cut a deal.

Daniel Gross is economics editor at Yahoo! Finance

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm