Highlights of Economic Recovery Plan
Spending
Energy
$32 billion Funding for "smart electricity grid" to reduce waste
$20 billion + Renewable energy tax cuts and a tax credit for research and development on energy-related work, and a multiyear extension of renewable energy production tax credit
$6 billion Funding to weatherize modest-income homes
Science and Technology
$10 billion Science facilities
$6 billion High-speed Internet access for rural and underserved areas
Infrastructure
$32 billion Transportation projects
$31 billion Construction and repair of federal buildings and other public infrastructure
$19 billion Water projects
$10 billion Rail and mass transit projects
Education
$41 billion Grants to local school districts
$79 billion State fiscal relief to prevent cuts in state aid
$21 billion School modernization
Health Care
$39 billion Subsidies to health insurance for unemployed; providing coverage through Medicaid
$90 billion Help to states with Medicaid
$20 billion Modernization of health-information technology systems
$4 billion Preventative care
Taxes
Individuals:
* $500 per worker, $1,000 per couple tax cut for two years, costing about $140 billion
* Greater access to the $1,000-per-child tax credit for the working poor
* Expansion of the earned-income tax credit to include families with three children
* A $2,500 college tuition tax credit
* Repeal of a requirement that a $7,500 first-time homebuyer tax credit be paid back over time
Businesses:
* An infusion of cash into money-losing companies by allowing them to claim tax credits on past profits dating back five years instead of two
* Bonus depreciation for businesses investing in new plants and equipment
* Doubling of the amount small businesses can write off for capital investments and new equipment purchases
* Allowing businesses to claim a tax credit for hiring disconnected youth and veterans
Let's review where we are.
According to the latest Beige Book things are pretty grim. This information is confirmed by the latest FOMC Minutes release. That means we are in a situation where we should do something. The proper question then becomes, what?
On one side, the Federal Reserve has been doing everything it can (and then some) to keep the financial sector afloat. The Fed has expanded its balance sheet enormously to deal with the financial crisis. Whether or not you agree with that expansion is a different question than whether or not it has been effective. The answer to the latter is yes -- credit spreads have come down. Lending won't return to pre-recession levels for awhile because, well, we're in a recession when lending naturally slows down anyway.
Then we have the consumer side of the equation which is in terrible shape. The US economy needs an active consumer, which is responsible for about 70% of out economic growth. But those expenditures have not been coming as fast lately. In fact -- the US consumer is pretty much going on strike right now:
Click on both for a larger image
The main goal is to increase consumer demand through government spending. The logic goes like this: the government spends more money. In spending this money they hire people to do things either directly (by directly hiring them) or indirectly (by having government contracts go to private firms who then hire people etc...). This puts more money in people's pockets which they in turn go out and spend.
The big question is will it work? The basic GDP equation (consumer spending + investment + exports + government spending = GDP) says so. But it's important to remember that the best laid plans of mice and men can run afoul too. In other words -- this is not a guarantee and should not be sold as such. There are still a ton of risks involved with this move.
6 comments:
"An infusion of cash into money-losing companies by allowing them to claim tax credits on past profits dating back five years instead of two"
Heavens to Reaganomics what will they think of next? So financial institutions that made billions in selling their fraudulently rated paper that caused the crisis can now go back and get the taxes they paid on these ill gotten gains. This is better than Paulson arbitrarily allowing them to capture losses from the books of their subsidized acquisitions. And I thought Paul Bremer's losing 13 billion in cash was bad. Why bother levying taxes at all?
"Repeal of a requirement that a $7,500 first-time homebuyer tax credit be paid back over time"
This will certainly encourage the next generation to save and plan for their future. Let's just make home ownership a video game where everyone gets a free home when they rack up 20,000 points.
It won't matter. The drain in the economic sink is now bigger than the faucet. Witness the abysmal news from Citi and BofA--they can't hold the line even with massive government funding.
Things won't stabilize until the whole of the bubble is sucked down the plughole.
Maybe then we can rebuild. Until then, we need to save our resources.
Chuck, I suppose there will always be people who believe the glass is half empty and becoming more so. Seems to me that fear is one of the major culprits here, and it has stopped the flows of money and the economies. I'm not discounting the other problems, but things are frozen out there. I think the main jest of Obama's plan is to get people and companies feeling some semblance of hope by seeing things starting to happen around them. What is it that folks say about the stock market (and the economy?)? -- that it is driven by emotion? There is still plenty of money out there, even with all the problems and debt. The U.S. needs to be jump started. If you don't like Obama's plan, what is your proposal other than jumping off the bridge?
Anony from San Fran Bay Area
I'll listen to someone like anony from san fran rather than the guy that wants me to just give up and die. it seems to me that folks who CAN spend aren't spending because they see everyone around them losing jobs and homes and they fear they will be next.
if they see these people find a job, or save their home, or see a business start to thrive again, they will relax and begin to consume.
the bottom line though is this: you cannot have infinite growth and ever-increasing profits on a finite planet with finite resources. I can't believe I'm the only one who felt uneasy when the growth was out-of-control. You just know that when energy becomes unaffordable, so too will everything else. The downsizing we are experiencing is crucial to our ultimate survival as a species, even in the short term. I would just like to see stores sell things that make life more quality driven rather than quantity. Enough with the planned/perceived obsolescence products. Less ambercrombies, and more handmade quilts or pottery or art. Produce a toaster that will last the rest of my life. Give me more used book stores and thift stores and art galleries. Let's do away with the belief that we must have the latest model of whatever. People should spend less money on their homes and clothes and useless decor items and more on travel, and good cuisine and entertainment and activities that don't include being hooked up to machines.In other words, COMMUNITIES and FAMILY. Festivals and live music and dancing rather than a trip to the mall to buy what you don't need would do wonders for every ones quality of life. But that's just me.
Live for today, don't worry about tomorrow.
That's what I do because I have no alternative. Don't own a home, my car is beat up but still gets me where I need to go. No savings, no cash, no health insurance. Hand to mouth. I will work doing whatever I have to till the day I die, I suspect. I never knew life any other way. But the culture I live in always looked down on folks like me, I'm a loser in folks books, I have heard.
Except, you can't lose something you never had. I haven't lost a home, or savings, or a 401k, or a pension or health insurance or addiction to wealth. I was never a slave to the things that are here today and gone tomorrow.
Perhaps folks will see that they are involuntarily being freed from their slavery.
Great Great Blog. I love your work on Kos and elsewhere.
This stimulus plan misses the mark by a long shot. Its to centered on "big think" "institutions" and "campaign contributors" rather than the people who really create jobs, the consumer.
Until we get pension and job stability along with enough income jump to put 10% or so into savings, pay down debts (the American consumer is grossly overdebted)and have extra to spend the recession will linger.
Post a Comment