Trades' last article pointed me to Recovery.gov, and it's interesting to see how the stimulus money was actually spent. In my opinion, a "good" stimulus meets the following requirements:
(A) Injects money into the economy that was not there before the stimulus;
(B) Directly impacts economic activity (i.e. not just "we will give everyone an extra $1,000, therefore they will probably spend an extra $1,000); and
(C) Has the likelihood of generating follow-on economic activity (such as improvements to infrastructure that both require payments to workers and will make business more efficient going forward, or investments in new industries that will allow them to flourish going forward)
Lets see how the stimulus stacked up. I'll take it in pieces and give my take (since I don't have time to do all of them at once).
First, the $298.5B in tax benefits:
- Increased AMT Exemption: 64.7B. My comment: This directly keeps money in the hands of individuals who would otherwise have been hit by the AMT. But this is not a stimulus. It does not encourage additional economic activity over and above what was already happening; it simply prevented people's tax bills from going up in the future. There's no multiplier effect here at all.
- 25.7B in "American Opportunity Tax Credit" - which gives a larger tax credit for college tuition payments. VERY VERY MUCH not a stimulus. The policy implications of this are debatable - but this should not have been included in a Trillion dollar emergency economic recovery bill. It has no immediate impact on economic recovery
- 18.4B in "Child Tax Credits" for low/middle income taxpayers. Again, not stimulus funding, though it puts dollars in pockets that can then be spent.
- 10.7B in "First Time Home Buyer" tax credits. Meant to encourage the entrance of new buyers to the housing market ("first time" makes sense, since if you are both selling and buying a home at the same time, it doesn't have any net effect on supply and demand), it did not really work. This is actually a "stimulus" provision, as it is meant to directly impact economic activity - but IMO it is a poorly targeted one, propping up a market and having few if any follow on effects.
- 6.3B to exclude a portion of unemployment benefits from taxes. Do I even need to say it?
- 5.1B in Earned Income Tax Credit. Ditto
- 4.4B in more exemptions from the AMT. See above
- 1.1B in tax deductions for certain motor vehicle expenses. See First Time Home Buyer section
- 104.1B in "Making Work Pay" credits. This is right in the "we'll give everyone extra money and that will stimulate the economy because they'll spend it" school of poor stimulus thinking
- 38.45B in changes to rules governing business expenses and deductions. None of which really related to economic activity. Again, this is the "Tax Cuts" theory of stimulus spending.
- 230M in incentives to hire unemployed veterans and young workers. Largely ineffective and there is no requirement that the business taking advantage of the incentive show a net gain in employees (in other words - fire a current employee, hire a vet at the same salary, and the business saves money at $0 in net economic gain)
- 10.4B in credits for making homes more energy efficient. Made it 30% cheaper to make energy efficient home improvements; may have stimulated some such improvements. Would like to see a study comparing the rate of such projects pre- and post-stimulus.
- 420M in alternative energy credits. Same as above - interesting to see what effect this had, if any, on the alternative energy industry.
- 370M in credits for sourcing energy purchases from entities using renewable sources. This isn't a stimulus at all - more a policy choice. It's a zero sum equation - electricity will be purchased from somewhere no matter what - and this is merely tilting the playing field towards a favored player and away from a non-favored one.
- 90M in electric car credits. This does not seem to impact purchasing decisions so much as change the amounts spent; the only people who would take advantage of this are those already in the market for a new car.
- 43M in credits for "Alternative Fuel Refueling Properties". Aaaargh. Take a great idea and underfund it and target it improperly. This provides a credit of 30% of the cost of putting an alternative fuel station (an E85 tank at a gas station, an electric car charging unit, etc.) in service, up to $30,000. This is the definition of a stimulus cut: it directly motivates economic activity (the construction of alternative fuel stations) that itself holds out the prospect of follow-on economic activity (if alternative fuel stations are plentiful enough, the chief objection to alternative fuel vehicles - their range - will be gone, and their production and popularity will greatly expand). And it is one of the most underfunded aspects of the program, limits the deduction for no good purpose, and further pushes the ethanol boondoggle. A far more robust program favoring the construction of electric charging stations could have had a huge effect on the economy. Oh well - at least they tried.
- 3.7B in extra COBRA funding. Not. A. Stimulus.
- 4.1B in delayed tax withholdings for government contractors. Doesn't seem like it spurs construction; a "money in your pocket" stimulus
- 1B in construction bonds. OK, stimulus
- 630M in incentives to invest in alternative energy. Again, a policy choice, but at least a stimulating one.
- 350M tax credit for government retirees. WTF?!
- 320M in new unemployment/health coverage benefits. Not a stimulus.
- ~500M in misc. items I won't bother to break down
Bottom line, of nearly 300B in "stimulus" tax breaks, I count maybe 13B in really well targeted stimulus "spending" - including the tragically missed alternative fueling stations opportunity