Markets give cold response to Obama’s stimulus proposal

U.S. President Barack Obama Thursday made an ambitious bet to help revive the American economy, which is feared to fall into a double dip recession, and to win re-election next year.

He urged Congress to pass a bill worth 447 billion U.S. dollars for a stimulus package exceeding market expectations, which is meant to create jobs, and proposed tax cuts for the working and middle class.

Major U.S. media expressed high hopes for the bill, but global markets had a cool response. European stocks started weak and Korean stocks fell Friday. Because of the Republican Party`s opposition to an economic stimulus package involving fiscal spending, many doubt how much of the stimulus package will pass Congress and generate a impact.

Obama`s proposed stimulus package seems to reflect the desperateness he and his economic aides at the White House feel about the economic situation. They recognize that the U.S. economy cannot recover without an ample stimulus package.

To reignite the sluggish economy, Obama intends to make deep cuts on taxes levied on individuals and small businesses to help revive consumption. He plans to further cut earned income tax, which was cut from 6.3 percent to 4.2 percent late last year, to 3.1 percent, and prompt the middle class to spend the savings on taxes.

If the stimulus package is approved, the value of earned income tax saved for 2012 will reach 175 billion dollars. Additionally, the tax rate on smaller business that receive social welfare funds will fall from 6.2 percent to 3.1 percent, resulting in 70 billion dollars in the combined value of the tax cuts.

Moreover, companies that hire employees or give pay raises will be fully exempt from taxes.

Whether tax cuts will directly lead to job creation remains uncertain, however. Nigel Gault, chief economist at HIS Global Insight, said, “If taxes are cut amid an economic recession, people will try to put the money in savings and thus jobs will not be created.”

The value of tax cuts alone reached 245 billion dollars, or more than half of the value of the economic stimulus package of 447 billion dollars.

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