Big hopes for a modest jobs plan

The modestly sized jobs plan President Barack Obama proposed last Thursday, if passed by Congress, might be good news for many financial planning and investment advisory firms, but it seems unlikely to do

much for most of their clients.

The president proposed cutting the Social Security payroll tax to 3.1% on the first $5 million of payroll for businesses and on the first $50 million of payroll for businesses that hire new employees or give their employees raises. Many, if not most, financial services firms would be able to take advantage of those tax cuts.

Advisers’ clients who are business owners also would be able to benefit from the Social Security payroll tax cuts for employers, but those who are employees would see only the small cut in the tax from 4.2% to 3.1%.

The package will almost certainly be modified in Congress. Republicans probably will like the proposed tax cuts but not the $140 billion in proposed new spending.

The overall impact of these tax cuts on economic activity is likely to be small. The employer tax cut would save employers an estimated $65 billion. The individual payroll tax cut would save employees $175 billion. These are small sums in a $14 trillion GDP economy.

Likewise, the $140 billion the president wants to spend on transportation, saving the jobs of teachers and first responders, schools and an infrastructure bank at best would have a mild impact on the economy, particularly in the short term. The transportation and infrastructure projects would take time to crank up. The final part of the $447 billion package is aimed at helping the unemployed, mostly through extending jobless benefits.

The best hope that the new package can move the needle on a recovery is that the economy is not as debilitated now as it was at the beginning of 2009. On the other hand, consumer and business confidence both are at a low ebb.

So even with the temporary tax incentives, businesses are unlikely to hire substantial numbers of new employees until demand for goods and services improves, and consumers are unlikely to spend strongly until the jobs picture improves.

Of course, the big question is how much of the package will be passed by Congress.

If Mr. Obama and the Democrats are willing to compromise and accept some Republican ideas for easing regulations in return for Republican acceptance of some additional spending, a deal could be possible.

In fact, any sign that Democrats and Republicans can cooperate to produce a jobs package might be of more value than whatever legislation eventually results.

Abatement of the extreme partisanship that has stalled meaningful action on the country’s real long-term problems would improve both business and consumer confidence, and might even boost the capital markets. And it would likely magnify any modest effect of whatever law the president ultimately signs.