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PSeptember 23, 2011

Part II: $128 Billion & the American Jobs Act

I was asked by one of our employees for my “take” on President Obama’s new American Jobs Act  (AJA) and his September 8th prime time address to Congress. My cousin Brian was spotlighted in the News Journal answering that same question. See below, but don’t forget to come back to my blog!

Click here to read the News Journal article featuring a quote from Brian DiSabatino.

I don’t pretend to understand Keynesian macroeconomic theory or more simply stated the effect on how government spending can help stimulate the economy. It sure didn’t seem to work when the first stimulus was imposed on the economy and it was almost double the amount ($787 Billion) being proposed today! Enough to fund the State of Delaware for 246 years!

As a former chief estimator at EDiS, I still like tinkering with numbers. So to answer the question on President Obama’s second stimulus proposal presented two weeks ago let’s take a look at the numbers relating only to “infrastructure”.

AJA Cost to American Taxpayers: $447 Billion

AJA Components:

Less payroll tax cut from 6.2% to 3.1% for workers in 2012, up from a 2% reduction this year. Cost: $175 Billion

Less payroll tax cut from 6.2% to 3.1% for employers and eliminated for qualifying new hires in 2012, plus 100% expensing for new investments. 
Cost: $70 Billion

Less extending unemployment insurance and new programs for jobless. Cost: $62 Billion

Infrastructure investments, including modernizing schools and rehabbing vacant homes, and funding for states to rehire teachers and first responders. 
Cost: $140 Billion

Less funding for states to rehire teachers and first responders (guess). Cost: $12 Billion

Funds from the AJA allocated for infrastructure = $128 Billion

We will get back to that in a minute. Remember…$128 Billion.

According to the U.S. Census Bureau News July 2011 construction spending was at an annual rate of $789.5 Billion (65.17% private and 34.83% public) If we go back 4 short years to 2007 construction spending was $1.137 Billion (74.75% private and 25.25% public). $128 Billion referenced above for infrastructure represents 16.22% of the total construction spending in 2011. But as we all found out the hard way, nothing today is shovel, permit, zoning, EPA, Core of Engineers, Bog Turtle Study or Highway Department ready. The spend out curve for $128 Billion is probably 4 years and although infrastructure would get improved it would have little impact on employment. Let’s keep talking about $128 Billion. Ready to get in the weeds…$128 Billion in construction. Let’s assume 60% for materials, equipment and all other non-field labor expenses and 40% for field labor:

Field labor amount                                           $51.2 Billion

Davis Bacon wage premium for federal work      * 22%

Additional cost and premium to taxpayers           $11.26 Billion

(Enough to fund the State of Delaware for 3.2 years)

*Testimony before the Committee on Education and the Workforce 
United States House of Representatives April 14, 2011 by James Sherk Senior Policy Analyst in Labor Economics for the Heritage Foundation

The Davis-Bacon Act has a suspension provision that has already been used by four presidents.  Most recently George W. Bush suspended the Act in September 2005 within the four states ravaged by Hurricane Katrina. So what is my idea? In light of the severe economic and unemployment pressure we are all feeling, I would propose that we change the Act through an executive order. This executive order would not eliminate Davis-Bacon, but instead suspend the wage provisions until the unemployment rate falls below 5.5% and save billions of dollars as we work together through this economic crisis.

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