The Obama Administration Addresses Jobs Head-On

The Obama administration is addressing job creation head-on. On December 8th, it unveiled a three-pronged strategy: tax breaks for small and medium enterprises, for investment in infrastructure and for investment in energy-efficient housing. Japan also has an interest in how effectively this money is spent and whether this policy leads to growth and job creation against an unforgiving financial backdrop.

Although the U.S. unemployment rate fell slightly in November, it is still higher than 10 percent. Unemployment in some states, including California and Florida, is the highest since current records began in 1976. While the economy may be improving, the employment situation remains unpredictable.

Pointing out in his December 8th speech on the economy that “there are seven million fewer Americans with jobs today than when this recession began,” President Obama revealed his intention to deliver a second act to the $787 billion stimulus that was passed in February.

First up is lowering taxes on small and medium enterprises, which have been responsible for 65 percent of new jobs, and arrangements to suspend the capital gains tax on new investments in small and medium enterprises for one year and to allow deductions based on the depreciation of their capital purchases to be claimed earlier.

Second, the president wants to head off any break in investment in infrastructure such as roads and bridges. Finally, he envisages a tax refund on energy-saving home improvements. In this way, he aims to foster job growth in the housing and public sectors.

The problem is how he is going to come up with the money. Thanks to large-scale expenditures, Obama faces a budget deficit that has ballooned to 10 percent of the U.S. GDP. Because Congress and public opinion are wary of further deficits, the president did not specify the scope of his extended stimulus.

The Emergency Economic Stabilization Act enacted last fall allotted up to $700 billion in public funds to be injected into banks. Because $200 billion more of these funds has been returned than was forecast last summer, the government is contemplating retooling this money to pay for an extended stimulus.

Indeed, Japan faces the same problem – that is, how to head off a worsening economy and employment with a severely limited budget.

While Japan’s five percent unemployment rate is lower than in the United States, this is being propped up by subsidies given to enterprises to support employment. Due to stagnation in capital investment, real growth from July to September was revised downward on the order of one percent compared with the previous quarter, and it is feared that the Japanese economy will experience a second bottoming-out next year.

The United States’ “eco-tax breaks” for housing are one thing that it has in common with Japan. However, the United States’ direct focus on job creation by companies is to be commended. Isn’t it time that Japan also stepped up and adopted reasonable policies?