American Recovery & Reinvestment Act of 2009

Source: Speaker of the House of Rpresentatives Office (2009)

Despite the tremendous amount of excellent commentary out there on the stimulus, I've received quite a lot of requests for my opinions on the stimulus package, recently passed congress and expected to shortly be approved by the President.

About 1/3 of the package includes tax cuts that are either continuations of existing "temporary fixes" or were heavily advocated by both parties in the recent election (e.g. AMT reindexing, R&D Tax Credit, etc). For all intensive purposes, the absence of these "cuts" would have been anti-stimulative, because they were already expected. What this means is that there are unlikely to be too many surprises come tax time for people receiving incentive stock options, who are dependent on special exemptions or whose income places them in AMT.

Another 1/3 is devoted to welfare (unemployment, health insurance focused, not any specific enhancements for TANF) programs and financial support for municipalities. It is likely only the beginning. Due to demographic factors and an unwillingness to make hard choices, most municipalities are in difficult situations where they will either be forced to cut services or increase taxes. While each state and city will have their own unique experience, there will be generally difficult choices for most governors and mayors. I expect to see future fiscal crises emerge, with the most extreme cases receiving federal assistance.

These funds aren't likely to have a substantial impact on this recession. The money will likely be spent after it's over. The basis for the argument that the stimulus package will generate activity ("create jobs") is that it will generate expectations which will stimulate investment and spending. Given the relatively small sums of money involved (it's a $14 trillion economy), it's hard to imagine the package having that much impact under any circumstances.

Thus, it is difficult to find much of significance from an investment standpoint regarding the current spending package.

In my opinion, what is of much greater significance, and requires a much more clear direction, is the US Treasury's strategy of restoring investor confidence in the financial sector.