Obama's 2011 Budget: Targeted Stimulus Focused on Jobs

As part of the $3.8 trillion budget President Barack Obama submitted to Congress Monday, he proposed about $100 billion in spending to address the nation's immediate problems of unemployment and economic weakness. The funds will go to tax cuts for small businesses, more spending on social safety net programs, and increased aid to state and local governments, as well as investments in clean energy and infrastructure.

In the longer term, Obama will be looking to a bipartisan task force of lawmakers and budget experts to draft a comprehensive deficit-reduction plan -- a package of tax hikes and spending cuts that would slash the deficit and stabilize government borrowing by 2015.Obama made his goals clear during his weekly radio address on Saturday. "So many people are still struggling -- when one in ten Americans still can't find work, and millions more are working harder and longer for less -- our mission isn't just to grow the economy," he said. "It's to grow jobs for folks who want them, and ensure wages are rising for those who have them."

"That's why job creation will be our number one focus in 2010," Obama continued. "We'll put more Americans back to work rebuilding our infrastructure all across the country. And since the true engines of job creation are America's businesses, I've proposed tax credits to help them hire new workers, raise wages, and invest in new plants and equipment. I also want to eliminate all capital gains taxes on small business investment, and help small businesses get the loans they need to open their doors and expand their operations."

Obama wants to make the Build America Bonds program permanent. Under the program, the federal government subsidizes infrastructure projects by paying 35% of the interest costs from taxable bonds issued by local governments. But Obama wants to reduce the subsidy to 28%.

Small Businesses Demand Access to Credit

Small business owners are skeptical about the program. Small business leaders in the Los Angeles area told The Los Angeles Times that unless large contractors hired for stimulus projects are required to hire small subcontractors, small business won't get a piece of the pie.

While small business owners said they would appreciate the proposed tax breaks in the bill, it won't be tax breaks that will determine their hiring decisions: The deciding factor will be whether or not their businesses need more employees because their sales are picking up.

Most of Obama's $100 billion for jobs stimulus -- $61 billion -- will go to the "Making Work Pay" tax credit, which he wants to extend for another year. The tax credit is worth $400 to individuals and $800 to couples. He's also announced a $30 billion lending program for community banks to lend to small businesses.

Small business owners have made it clear that unless banks are willing to them lend money, they won't be able take advantage of proposed tax breaks to buy equipment. Yet community banks say they are having a hard time finding small businesses to lend to, either because owners don't want to take on additional debt or they don't qualify under the banks' lending standards. The fact is that a growing number of small business owners are struggling and the banks are unwilling to risk lending to them, even if the government makes extra cash available.

Small business owners contend that lenders will have to change their criteria to allow more small businesses to get loans. As long as credit is tight, we won't see more small businesses getting access to the credit that will allow them to buy equipment or hire more workers.

An Open Wallet Now, a Balanced Budget Soon

In addition to presenting his 2011 budget to Congress on Monday, Obama called for the creation of a special debt commission. In his Saturday address he said, "But as we work to create jobs, it is critical that we rein in the budget deficits we've been accumulating for far too long -- deficits that won't just burden our children and grandchildren, but could damage our markets, drive up our interest rates, and jeopardize our recovery right now. "

But the key will be not cut government spending so quickly that the country is thrown back into a recession. The administration plans to impose a three-year partial freeze in discretionary spending outside of defense and entitlements, but it won't be across the board. For example, the education budget is slated for as much as a 6% increase, as is spending research and development initiatives.

Obama plans to save money in 2011 by cutting 120 projects, among them a plan proposed by former President George W. Bush for a NASA mission to the moon.

The budget numbers do incorporate the effects of health care legislation currently before Congress, but projected revenue of $646 billion from a proposed cap-and-trade climate change bill has been dropped. So while Obama is still clearly planning for the health reform bill to pass, he is no longer banking on getting cap-and-trade in a climate change bill.

On Sunday, Senate Minority Leader Mitch McConnell (R-Ky.) made it clear on CNN that Republicans want the Democrats to focus solely on cutting taxes, including extending tax cuts for the wealthy enacted during the Bush administration. "If you're in business now and you're trying to figure out what the future is, you're looking at health care taxes, you're looking at capital gains taxes going up, dividend taxes going up," he said. "So, is that a great environment in which to expand employment? I think the answer is no."

Based on these fighting words, it's clear we're in for another stormy budget year. And since we're also entering an election year, there is even less chance the two parties will find a reason to compromise. If Obama is to be successful in turning his proposals into realities, he'll need 100% support from Senate Democrats, plus the Senate's two Democratic-leaning independents, and at least one Republican now that Ted Kennedy's former seat is in Republican hands.
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