Virginia Ready-Mixed Concrete Association VRMCA Economic Policy and Politics Daniel Palazzolo University of Richmond Tuesday Sept 13, 2011

GDP=C + I + G + E ________________________________ 2011: Estimates in Trillions of $ ________________________________ Total GDP: $14.99 Consumption: $10.67 (71%) Investment: $1.89 (13%) Government: $3.04 (20%) Federal $1.24 (8%) Net Exports - $.60 (-6%) ________________________________ Source: Bureau of Economic Analysis

Gross Domestic Product (GDP)GraphGross Domestic Product (GDP)Graph Gross Domestic Product (GDP) Graph

Highlights to President Obama’s Plan: American Jobs Act ________________________________________________ -Payroll Tax Cut from 6.2% to 3.1% for workers in 2012 Cost: $175 billion -Payroll Tax Cut from 6.2% to 3.1% for employers and eliminated for new hires in 2012, plus 100% expensing for new investments Cost: $70 billion -Infrastructure Investments and funding for states to hire teachers and first responders Cost: $140 billion -Extending unemployment insurance and new programs for jobless Cost: $62 billion Total Cost: $447 billion (3% of GDP over 10 years)

More Detailed Breakdown of Obama Plan Proposal10-Year Cost (Billion) Cut Employer Payroll Taxes from 6.2% to 3.1% and Create Bonus Payroll Tax Cut for New Jobs/Increased Wages $65 Extend 100% Expensing for 2012$5 Teacher Rehiring and First Responders$35 Modernize Schools$30 Infrastructure Spending$50 Create an Infrastructure Bank$10 Rehabilitate and Repurpose Vacant Property $15 National Wireless Initiative (Paid For Through Spectrum Auction) $0 Veteran's Hiring InitiativeN/A Extend and Reform Unemployment Insurance $49 Tax Credit for Hiring Long-Term Unemployed $8 Create Fund for Low-Income Youth and Adults For Training and Year Round/Summer Jobs for Youth $5 Cut Employee Side of Payroll Tax from 6.2% to 3.1% for 2012 $175 Total $447

Potential Economic Effects: Mark Zandi (economist with Moody Analytics: “ The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

Economic Constraints: Limits of the Plan (1)Total effect is small part of total economy (3% of GDP even if all of the plan is approved by Congress AND all of it is stimulus) (2)Infrastructure Spending is gradual, not an immediate stimulus (3)Individuals save or pay back debt with temporary transfers rather than spend it. (Permanent income effect) (4)Firms hire some portion of workers who are already employed. (5)If the plan is “paid for” then the effect depends on how and when it is paid for: effect of tax cuts can be undermined by future tax increases. This is not a typical Keynesian “deficit spending” plan. (6)It’s the DEBT!

Federal Spending by Major Category: 1965 and

Political Reality What is likely to pass through Congress? *Payroll Tax provisions, or some version. *Small business package *Free trade pacts: Columbia, Panama, South Korea *Unemployment benefits Infrastructure and State grants less likely to pass Senate Minority Leader Mitch McConnell of Kentucky: “I’m often asked, ‘What would you do to get the economy going?’ My answer is always the same: We need to quit doing what we’ve been doing. Quit borrowing. Quit spending. Quit trying to raise taxes. Quit overregulating and let the private sector flourish.”

Gallup: President Obama’s Handling of the Economy

PERCENT OF RESPONDENTS WHO AGREE… SOURCE: PEW CENTER FOR PEOPLE AND THE PRESS (AUGUST 25, 2011)

Aging Population

What Should (Must) We Do? Short-term, Immediate *Mortgage Refinancing *Loosen Regulations (environmental, workplace, compliance) *Expand credit and make capital available to homeowners and small businesses (repeal Dodd Frank provisions and credit rating forgiveness) *Territorial system of taxing overseas profits ($1 trillion in profits overseas) *Enterprise Zones *Infrastructure Spending *Resolution of Individual Mandate and PACA Provisions Big Ticket Items *Entitlement Reform: Medicare and Social Security *Tax Reform: Eliminate Tax Expenditures and Lower Corporate and Individual Rates. *Health Care Cost Containment Beyond Government? *Time will resolve housing sector and deleveraging *Increased consumption and investment of corporate profits