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Tuesday, December 8, 2009

Obama jobs plan: big ideas, but a big hole to fill in hiring

There is an appealing symmetry to the idea: Recycle the loans the big U.S. banks are rushing to repay to the Treasury and plow the cash back into job creation.

The ailing banking sector is on the mend. On the other hand, unemployment remains in double digits, and could stay there well into 2010 and beyond.

So why not put the money to work?

U.S. President Barack Obama is expected to propose just such a plan today when he delivers a key economic speech, focusing on how to get the millions of unemployed Americans working again and make a dent in the 10-per-cent jobless rate.

Mr. Obama is looking at new cash incentives for energy-saving home renovations, tax breaks to encourage small businesses to hire, and transfers to cash-strapped states.

Speaking yesterday at the White House, Mr. Obama hinted at what he will pitch, suggesting the money could be split between creating jobs and paying down the U.S. government's swollen deficit.

"Some of that money can be devoted to deficit reduction," Mr. Obama said. "The question is, are there selective approaches that are consistent with the original goals of TARP, for example making sure that small businesses are still getting lending, that would be appropriate in accelerating job growth?"

The proposal, which the Democratic-held Congress would need to okay, comes as the government disclosed that its controversial bank rescue fund - the $700-billion (U.S.) Troubled Asset Relief Program - may wind up losing far less than initially thought.

The government now expects to get back all but $141-billion of the money it lent out at the height of the financial crisis. The Treasury department had earlier estimated that roughly half of the TARP funds would never be repaid, swallowed up in the rescues of American International Group, Bear Stearns, auto makers General Motors Corp. and Chrysler, and elsewhere.

Officials credit the speedier repayment by Bank of America and other financial institutions, who have returned roughly $70-billion to date.

The government expects repayments to reach $175-billion by the end of next year.

So far, the government has spent about $450-billion of TARP funds. Another $250-billion remains unused.

The administration's preoccupation with jobs is understandable. The U.S. economy has lost some 7.2 million jobs since the recession began nearly two years ago. And millions of Americans have given up looking for work, gone back to school or taken part-time jobs because they can't find full-time employment.

There are also powerful political incentives to act. Americans are worried about the economy, Mr. Obama's approval ratings are slipping and unless conditions improve, Democrats risk losing control of the Congress in next fall's midterm elections.

Republicans oppose spending any more money to create jobs. They want the savings used to reduce the federal deficit, which hit a record $1.4-trillion in the budget year ended in September.

The fight to pass another round of fiscal stimulus is likely to be fierce.

But it is a sideshow compared with the real deficit crisis facing the United States - the unfunded and rising cost of big government social programs, including Social Security for retired workers, Medicare for the elderly and Medicaid for the poor.

By comparison, the billions in unspent TARP funds are pocket change.

And for all the talk about health care in recent months, very few U.S. politicians are courageous enough to challenge these so-called "entitlements." Indeed, the current health care package would likely add to them.

Payments to doctors and hospitals ratchet up every year, pushing the per capita cost of U.S. health care - already the costliest in the world - ever higher.

A recent study by the Washington-based Center on Budget and Policy Priorities (CBPP) concluded that unrestrained growth in the cost of government health programs in particular will send U.S. debts and deficits soaring over the next several decades. Most other expenditures will actually stay roughly the same, as a percentage of gross domestic product.

"Continuing current policies will lead the federal deficit down an unsustainable track," the CBPP said. If nothing is done, government debt will reach 300 per cent of GDP by 2050, up from an estimated 62 per cent this year. The deficit would double to more than 20 per cent of GDP, according to the report.

There's another perverse effect of soaring Medicare and Medicaid bills. Private insurance costs will also go up, forcing employers to offer workers a greater share of their pay in the form of tax-exempt health care benefits. That eats further into federal tax revenues, compounding the government budget woes.

Mr. Obama is right to be concerned about jobs and the recovery.

But someone needs to start worrying about the country's longer term problems.

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