The Obama-Republican Stimulus Package
NEW YORK (TheStreet) - First, we had the $787 billion Troubled Asset Relief Program (TARP ) (ultimately capped at $475 billion). It's not really a stimulus package. Rather, it's a capital injection to keep the U.S. banking system from a complete meltdown.
We then had the $700 billion American Recovery and Reinvestment Act of 2009 (ARRA) - certainly more of a stimulus package. And while all this was happening,
Bernanke was doing all he could to stimulate the economy
.
Since January 2008, the
Fed
's holding of securities has increased from $740 billion to $2.1 trillion, an increase of $1.4 trillion, and another $600 billion of securities purchases is ongoing.
We now have what I will call the "Obama-Republican Stimulus Package" (ORSP).
ORSP
What do we know? The Congressional Budget Office has made estimates for ORSP, and the table below is derived from those estimates.
Overall, ORSP totals $917 billion. It will mean the 2011 deficit will exceed the 2009 deficit. What will its stimulus impact be? An interesting question. The following table provides estimates assembled by John Lounsbury.
In essence, the Table says a dollar spent on unemployment benefits will increase spending by $1.73 while a dollar of Bush tax will only increase spending by 20 cents.
Will these multipliers hold for ORSP? I think not, and here is why:
- The multiplier estimates for food stamps and unemployment benefits are probably OK. People who are desperately poor will spend whatever they get.
- But what about the Bush tax cuts, the alternative minimum tax patch, and other expiring provisions? I doubt there will be any stimulus impact. Why? Because nobody expected these taxes would increase in 2011.
- And how about the estate tax, dividend and capital gains remaining the same? Again, no impact.
.
Detailed Provisions of OBSP
CCH has done a nice summary of OBSP
, and it is clear the DC lobbyists never sleep. Here is what included under "Business Tax Extenders":
- Indian employment credit and accelerated depreciation for business property on an Indian reservation;
- New Markets Tax Credit;
- Railroad track maintenance credit;
- Mine rescue training credit and election to expense advance mine safety equipment;
- Differential wage credit;
- 15-year recovery period for qualified leasehold improvements, restaurant building and improvements, and retail improvements;
- Seven-year motor sports entertainment costs recovery;
- Film and television production costs;
- Brownfields remediation;
- Code Sec. 199 deduction for Puerto Rico;
- Payments to controlling exempt organizations;
- Tax treatment of certain dividends of RICs and certain investments of RICs;
- Active financing exception/look-through treatment for CFCs;
- Five-year write off of farm machinery/equipment;
- Tax incentives for empowerment zones;
- Tax incentives for investment in the District of Columbia;
- Renewal community investments;
- Cover over of rum excise taxes to PuertoRico and USVI;
- American Samoa economic development credit.
Investment Implications
I am on record as saying the U.S. economy needed a larger stimulus. I applaud what Bernanke is doing and another $917 billion won't hurt. And since June 2009, I have urged people to get their money out of U.S. dollars and invest in emerging markets. The economies of Japan, Europe, and the U.S. are in a debt-ridden mess. This latest move only reinforces my recommendation to bet against the dollar.
Elliott Morss is an economic consultant and an individual investor in developing countries. He has taught at the University of Michigan, Harvard University, Boston University, among other schools. Morss worked at the International Monetary Fund and helped establish Development Alternatives Inc. He has co-written six books and published more than four dozen articles in professional journals.