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Before Obama's jobs speech, a look at what the CBO says

From NBC’s Shawna Thomas:

Wednesday, the Congressional Budget Office released August’s budgetary outlook which puts deficits at $1.23 trillion through the first 11 months of fiscal year 2011, which is $28 billion less than the deficit in August of 2010.  A 7.6 percent increase in revenues accounts for the decrease, but outlays were also up about 3.7 percent from August 2010, making the total deficit difference smaller than the revenues suggest.

Based on these numbers, the CBO estimates the deficit for fiscal year 2011 -- which ends Sept. 30 -- will total $1.28 trillion, about $10 billion less than last year’s shortfall.

Last month, the CBO released its analysis of the economic impact of the American Recovery and Reinvestment Act of 2009 or what’s better known as the stimulus for the second quarter of the year. That report said that although the effects of the stimulus are waning, the economic situation of the country would’ve been worse without it.

Specifically it said the stimulus raised real gross domestic product by between 0.8 and 2.5 percent, lowered unemployment by 0.5 to 1.6 percent and increased jobs by 1 to 2.9 million.

Evening as it loses steam, the CBO still estimates the stimulus will raise real GDP in 2012 by 0.3 to 0.8 percent and create 0.4 to 1.1 million jobs.

And one more thing to think about:  Last year the CBO released a report entitled “The Policies for Increasing Economic Growth and Employment in 2010 and 2011.” This report focused on policy options that might help the economy in the short-term. Some of those options have actually been enacted already and it’s very likely that the president will ask Congress to extend them or enact others in his Thursday speech.

Looking at this report and what the president has said, here’s what the president’s Thursday wish list might look like:

  1. Extending the payroll tax cut for employees for one more year: Doing this is estimated to cost around $112B (or, that’s what the CBO estimated it would cost to extend it for this year when it first passed in December of 2010).
  2. Reducing Employers' Payroll Taxes: Firms would probably respond to this temporary reduction in their cut of the payroll tax in four different ways: some would look to lower employment costs by reducing their prices and (hopefully) selling more goods which would spur production and in turn cause an increase in goods or services. Secondly, some firms would pass the tax savings directly onto employees through higher wages or bonuses which might prompt those employees to spend more. Third, some firms would just keep the tax savings as profit which would raise their stock prices and thus raise household wealth for their shareholders, who might spend some of that in the broader economy. Higher profits for companies also improves cash flow, meaning companies could invest in more capital. Finally, some firms would use more workers during the period when this policy was giving them relief, however, most of the “extra” money (that the government relinquished to them with this tax break) would go to reduce taxes for existing workers, so-per dollar of forgone revenue-the added incentive to increase employment and hours worked would be small.
  3. Extending Unemployment Insurance: Households receiving unemployment benefits tend to spend those checks quickly, making this option timely and cost-effective at spurring economic activity and employment.
  4. Infrastructure projects:  Although the CBO takes issue with these because they usually involve a lot of start-up lag time, it seems like the President might ask for some pretty big infrastructure investment all the same.