The President’s proposal is now looking anemic at best.

Like I think Woody Allen once said, the food was bad and the portions were small.

This will cost the Dems even more seats in November.

Fortunately the federal deficit is already large enough to support a bit of modest growth.

All looking very L shaped to me, with a hint of growth.

Gasoline consumption has recovered and showing signs of growth year over year, but very modest.

Modest recoveries from the lows and leveling off.

Continued modest improvement from the lows

Manufacturing, the smaller component of GDP, led from very low levels

Looking very L shaped.

These are March numbers, June should be out soon and show further balance sheet repair as deficit spending continues are relatively high levels, adding income and net financial assets to the non govt. sectors.

Lots of signs of leveling off at modest levels of top line growth.

Waiting for the handoff to private sector credit expansion as balance sheets repair, or another fiscal adjustment.

GS Skinny: The Administration’s New Fiscal Proposals

September 7, 2010

The White House has announced three new measures to stimulate growth: 100% up-front depreciation of capital investments; a permanent and slightly expanded R&D tax credit; and $50 bn in infrastructure spending. They could be helpful but are unlikely to have a large effect on growth for four reasons: (1) some of them cover multiple years, spreading out the fiscal impulse; (2) the incremental effect is smaller than the headline numbers imply, as some are modifications of existing proposals or policies and one is essentially an interest free loan; (3) the president proposes offsetting the cost of some of the proposals with targeted corporate tax increases of an equal amount; and (4) the likelihood of enactment of some of these proposals is low.

Key points:

1. Bonus depreciation. The president proposes to allow companies to deduct 100% of the cost of capital investments (not including real estate) made in 2010 and 2011. Press reports cite White House estimates that the proposal would lower corporate tax receipts by $200bn. However, almost all of this revenue loss would be temporary, since the additional deductions taken now would lower deductions in future years, effectively making this an interest free loan. Given current low levels of capacity utilization, the benefit of additional investment is low to begin with. Our previous analysis indicated that the 50% bonus depreciation provision effective for 2008 and 2009 had a relatively small effect on investment. To the extent it does have an effect, it is likely to pull forward demand into the quarter just before expiration (in this case Q4 2011) so the near term effect should be even more modest (and indeed the effect in early 2012 would be negative). Whatever effect the provision would have would also be weakened somewhat by the proposal to raise corporate tax revenues (through closing of “loopholes”) to offset the proposal’s cost.

2. R&D Tax credit. The president is expected to propose to increase and make permanent the research and development tax credit, at a cost of $100bn over ten years. This proposal is somewhat less than meets the eye, since the president has already proposed to make the credit permanent at a cost of $80bn. This leaves an incremental proposal worth around $20bn, or $2bn per year. Nevertheless, enactment of this proposal would be helpful on the margin, since the existing R&D credit lapsed at the end of last year and has yet to be renewed by Congress.

3. Infrastructure. The president proposes to spend $50bn on transportation infrastructure projects, as part of a six-year plan. We take this to mean a front-loading or incremental investment on top of the six-year reauthorization of surface transportation spending programs that has been pending in Congress for most of the year. For context, a $50bn addition to infrastructure spending is roughly on par with the investments made in that sector in the 2009 Recovery Act. If enacted, this could provide an important boost to growth, particularly in 2011. However, the likelihood of enactment in the near term appears low. Also, offsetting the otherwise positive effect is the proposal to offset the entire cost with the repeal of tax incentives for oil and gas companies.

4. Process from here. There are two likely scenarios for consideration of the tax-based measures. First, the Senate will vote on small business legislation next week, which already includes a 50% depreciation bonus for 2010. This provision could simply be modified, to bring it into line with the president’s depreciation proposal, in which case it could be enacted in the next few weeks. The second scenario is that the tax measures could be added to upcoming legislation to extend the expiring 2001/2003 tax cuts, which will be debated in late September. Adding corporate tax cuts to that legislation might allow Democratic leaders to attract enough votes for passage without extending the upper-income tax rates that most Republicans support. However, given that legislation’s uncertain prospects, adding these measures to it could also risk delaying enactment until after the November election. Infrastructure spending would be dealt with separately from the tax measures; the most likely scenario is that it could be considered after the election as part of the next stop-gap extension of the highway program, which expires December 31.

5 Responses

  1. Woody Allen – the food was bad and the portions were small.

    How much more growth Warren?

    Imported Seafood May Be Riskier Than Gulf Fare

    Consumers are caught in the middle as food safety experts ponder the potential risks from shrimp, crab and fish from the Gulf of Mexico while mostly ignoring the frightening evidence of years of foreign seafood arriving at U.S. ports tainted with drugs, chemicals and bacteria.

    “About 80 percent of the seafood we eat in the U.S. is imported, but less than 2 percent of those imports are actually inspected for contaminants like filth, antibiotics, chemicals and pathogens,” Food & Water Watch’s Cufone said.

    The prevalence of harmful contaminants in some imported seafood is documented repeatedly in the small number of inspections that the Food and Drug Administration makes.

    Many of the health hazards come from how the shrimp are raised overseas.

    Properly run shrimp farms yield up to 445 pounds per acre. Food & Water Watch, has documented that many foreign shrimp farm operators densely pack their ponds to produce as much as 89,000 pounds of shrimp per acre.

    “The water is quickly polluted with waste, which can infect the shrimp with disease and parasites. In response, many such operations in Asia and South or Central America use large quantities of antibiotics, disinfectants and pesticides that would be illegal for use in U.S. shrimp farms,” the group’s researchers wrote in a recent report.

    “With imported shrimp, we see pathogens like E. coli and salmonella, and filth, which is the official name [for] things like mouse and rat droppings, hair, insects, and the assorted chemicals, antibiotic and disinfectants they’re doused with to fight disease from the filthy conditions in which they’re raised,” she told AOL News.

    Congress Does Little to Help

    Less than 2 percent of foreign seafood is even eyeballed, let alone analyzed in a laboratory. The FDA says that’s because it lacks personnel and laboratory capability.

    “If we can find the problem, we can keep it out of the country, out of our food chain, but finding it depends on the fairly thin net of FDA inspectors working the ports to catch the problems before they enter the country,” Mike Taylor, deputy commissioner for foods at the Food and Drug Administration, said at a food safety conference in March.

    Taylor and about everyone else involved with food safety expected that Congress would soon pass a new, sweeping Food Safety Act that would update laws that have been of minimal value since they were written in the 1930s.

    That hasn’t happened.

    During the last administration, Democrats repeatedly raged over the failure of Republicans to pass what they called a “vital and life-saving Food Safety Bill,” legislation that would give the FDA and other food safety agencies the laws and resources to protect America’s food supply.

    The House approved the bill, but it has been languishing in the Senate for about a year; and many public health advocates, as well as other senators, say they’re puzzled why Senate Majority Leader Harry Reid is avoiding all action, even discussion of the legislation.

    Reid’s office did not respond to questions.

    What Does Get Stopped Is Frightening

    The FDA admits it’s checking only the smallest fraction of imported seafood, but some of what it does intercept is alarming and should make shoppers worry about what’s still getting to their fish markets.

    often, investigators can’t be sure where the fish actually originated.

    As they do with “honey-laundering” scams, import brokers often ship seafood from countries like China to other countries to avoid high import tariffs and intensified scrutiny for dangerous adulterants. For example, in one case, the U.S. Customs and Border Protection agency says millions of dollars of imported shrimp from Chinese producers were shipped through Indonesia to avoid paying steep anti-dumping duties.

    * Frozen shrimp from India, which was contaminated with salmonella, cockroach droppings and decomposition.

    Sneaky Tricks and Cons

    It doesn’t take long for the FDA and Customs agents to learn how far devious or sneaky businesses that put profits before safety will go to try to manipulate the few safeguards that are in play.

    For example, they cite the case of a Florida seafood import firm that had repeatedly violated the food quality standards. All shipments consigned to the company were routinely seized for more careful examination.

    In the late ’90s, the company was accused of fraud and conspiracy for selling decomposed shrimp, which it washed in a concoction of chlorine, trisodium phosphate, lemon juice and copper sulfate to disguise the odor.

    In February, FDA investigators determined that three shipments of imported frozen shrimp consigned to this company were shipped in through the Los Angeles Customs district. Attached to the refrigerated containers were shipping papers that said the shrimp came from an Indian company with a clean reputation; not the real shipper whose cargo was subject to seizure because of previous bad practices.

    So, the agents in California permitted the load to be transshipped to the Florida company, but along the way federal investigators discovered that the paperwork was bogus and agents in Orlando seized the shrimp.

    The FDA found cockroach droppings and human hair in two loads and salmonella and decomposition in the third. The loads were seized until the company could supply proof that the shrimp were safe.

    Obtaining the clean bill of health raised more issues as FDA found the company had been “shopping” for private labs that would and did produce an analysis declaring the shrimp was salmonella-free and safe to sell and consume. The FDA didn’t buy it and the shrimp were kept off the market.

    Shortage of farms and water threatens grain output targets
    By Jin Zhu (China Daily)


    By contrast, the cultivable land in the country sharply decreased from 130.04 million hectares in 1996 to 121.72 million hectares in 2008 due to rapid urbanization and natural disasters, figures from the National Bureau of Statistics show.

    Also, the current per capita cultivated farmland is about 0.092 hectares, which is only about 40 percent of the global average. Less than 4.7 million hectares in the country can be considered reserve farmland, Zhang told the legislature.


    “But these grain output increases cannot be continued since China does not have much additional farmland to be cultivated in the future,” he said.

    Officials have said that China might not be able to meet government agricultural output targets for the next decade.

    1. ‘“About 80 percent of the seafood we eat in the U.S. is imported, but less than 2 percent of those imports are actually inspected for contaminants like filth, antibiotics, chemicals and pathogens,” Food & Water Watch’s Cufone said.’

      A typically meaningless statement. If the sampling is done randomly, 2% could be more than enough.

      The next scandal to break is that polling firms are only querying 0.001% of the people to determine Obama’s approval rating.

  2. On April 9, 2008, I wrote, ” The federal government creates money when it pumps more money into the economy than it removes by taxation. The $150 billion stimulus package is an example, albiet too little and too late.
    “To prevent a serious meltdown of our economy, the federal government must pump $500 billion – $1 trillion into the economy. The government should reduce or eliminate certain taxes and/or increase spending on certain projects.
    “Example: The federal government estimates it 2008 collection of the FICA tax at $821 billion. Were FICA eliminated, workers and business (each of which pays half) would benefit immediately. The recession, would end; a depression would be prevented.
    “Contrary to common wisdom, this $821 billion addition to the federal debt would not cause inflation. The Reagan/Bush $6 trillion addition to the debt did not cause inflation, which easily was prevented with interest rate control.”

    I’ll stay with that prediction. Too bad Congress and the President still haven’t figured it out.

    Rodger Malcolm Mitchell

  3. Off topic again: how about some of us write to the Financial Times congratulating them on tumbling to the fact that a payroll tax holiday is a good idea, and telling them that the group of people who have been advocating the payroll tax holiday have also advocated another idea for several years: MMT. Therefore the FT ought to have a look at MMT.

    Write to: and include your name, address and phone number at the end. Plus you need to refer to the article where they advocated the payroll tax holiday in the following form – usually at the end of your first sentence – (“A new US stimulus”, September 8)

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