Federal Focus
Congress Rejects President Obama’s
American Jobs Act
By Barrie Tabin Berger
The Senate failed to
garner enough votes
to move forward with
President Obama’s
job creation plan, the
American Jobs Act.
A
fter weeks of cajoling about
how important the measure
would be to help get the
economy back on track, the Senate
still failed to garner enough votes to
move forward with President Obama’s
job creation plan, the American Jobs
Act (S. 1660). Senate Republicans and
moderate Democrats opposed the bill’s
infrastructure spending and the tax
increases it proposed to pay for these
spending measures. The Republicancontrolled House of Representatives
rejected the measure upon introduction and never scheduled a vote to consider the bill on the full House floor.
ABOUT THE PLAN
In mid-September, the president
presented Congress and the American
people with his plan to help create jobs
for American workers. The American
Jobs Act was a combination of spending on public-sector initiatives such
as building infrastructure and hiring
teachers and first responders, along
with tax cuts. A third of the $447 billion proposal would have provided
direct support to state and local governments, with nearly $50 billion directed
at improvements to the country’s transportation infrastructure.
The proposal called for spending $30
billion to rehire or prevent layoffs of
up to 280,000 teachers, and another $5
billion for police officers, firefighters,
and other emergency workers. An additional $15 billion would be allocated
to revitalizing vacant and foreclosed
properties to put people to work and
increase property values in blighted
neighborhoods.
Also notable for state and local governments, the legislation would have
provided for an additional one-year
delay of the implementation of the
3 percent withholding requirement,
to January 1, 2014. The Government
Finance Officers Association (GFOA)
has advocated for a full repeal of
this costly unfunded mandate, which
would require the federal government,
all states, and those local governments
that spend more than $100 million a
year on goods and services to withhold 3 percent of all payments made
to vendors and remit that 3 percent to
the IRS. The House of Representatives
will likely be taking up legislation this
fall (H.R. 674) to fully repeal the law.
Similar legislation is pending in the
Senate (S. 89 and S. 164).
The president also proposed enlarging and extending the Social Security
payroll tax deduction for employees,
including those in the public sector
who contribute to Social Security,
through 2012. Employees would have
paid half the 6.2 percent rate, or 3.1
percent of their wages. Private-sector
October 2011 | Government Finance Review 59
employers would also have received
a Social Security payroll tax deduction
through 2012. Private-sector companies
that hire new employees or raise the
wages of existing employees would
have received an additional tax break.
State and local government employers
(other than state colleges and universities) would not have been eligible to
receive these tax breaks.
The plan would have created a
national infrastructure bank, initially
capitalized with $10 billion in federal
funds. This program was intended to
help finance large-scale projects that
create transportation, water, or energy
infrastructure.
CONCLUSIONS
THE STUMBLING BLOCK
To pay for the spending initiatives, the
bill made modifications to entitlement
programs, assumed reduced war costs,
and included a new permanent 5.6
percent surtax on households earning
more than $1 million per year. As initially introduced, the legislation proposed
$1.6 trillion in new revenues through
a series of tax increases, including a
proposal to limit exemptions for interest on tax-exempt municipal securities
for high-income earners (individuals
with an adjusted gross income of more
than $200,000, or married couples with
a combined adjusted gross income of
more than $250,000), a move the GFOA
has consistently opposed because of its
potential to increase borrowing costs
for state and local governments.
The president’s original bill also limited state and local tax deductions,
along with other deductions such as
employer-provided health insurance,
mortgage interest, and charitable contributions for high-income earners.
While supportive of the stimulus initiatives in the jobs act, Senate Democrats
rejected the president’s initial tax proposals to pay for the package, objecting
in particular to the $200,000 - $250,000
threshold as a tax increase on the middle class and small business. Instead,
they amended the legislation to include
60 Government Finance Review | October 2011
the new permanent 5.6 percent surtax
on households earning more than $1
million a year to pay for the new spending measures, but even that change
could not secure the votes needed to
move the bill forward.
Senate Democrats have stated that
their next step will be to break the
package into several smaller bills that
might be able to garner bipartisan support, such as a bill to extend the payroll
tax cut. President Obama has said he
would consider signing portions of the
measure if they are presented to him in
a piecemeal fashion.
Senate Democrats have said their
next step will be to break the
package into several smaller bills
that might be able to garner
bipartisan support.
The GFOA will continue to work with
its partner state and local government
associations to ensure that federal initiatives to spur economic growth are
consistent with state and local government priorities, including limitations
on federal unfunded mandates, the
preservation of tax-exempt financing,
and job creation. y
BARRIE TABIN BERGER is the assistant
director of the GFOA’s Federal Liaison
Center in Washington, D.C.