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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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Bloomberg
...AND WE'RE HERE TO HELP John Boehmer, Nancy Pelosi and Hank Paulson announcing the stimulus package last Thursday.
January 28, 2008 12:01 AM ET
While Congress edges closer to an agreement over a fiscal stimulus package, a contingent of lawmakers and tax policy experts are suggesting what some are ironically calling a “second tranche” of tax cuts and spending to keep the economy out of recession. Lawmakers are trying to complete the initial stimulus package by Feb. 15, before Congress recesses for a week. However, in order to meet budgetary guidelines and a tight time frame, many tax provisions will be excluded from the package. The stimulus proposal, crafted by congressional leaders and Treasury Secretary Henry Paulson, would dole out $100 billion in individual tax rebates and $50 billion in business tax incentives. During a press conference last Thursday, House Speaker Nancy Pelosi (D-Calif.) said the initial stimulus was crafted to be swift and help stave off a recession, adding that “if it does not, there will be more to come.” House Minority Leader John Boehner (R-Ohio) noted that pet projects many lawmakers tried to add to the package would be discussed later. The major business provisions in the House agreement would allow companies to write off 50% of their capital equipment, as well as permit small companies to take twice the previous tax deduction. Initially, proposals to renew the research and development credit and allow business net operating loss write-downs were floated, but they were ultimately kept out of the House compromise. Making the 2001 and 2003 Bush tax cuts permanent, a popular idea among Republicans, was also tabled for now. But such ideas were not killed altogether; they could find their way into a second proposal. Other suggestions from both parties (and the list is nearly endless) include: additional spending on infrastructure, extending the carryover for net operating losses, investment breaks in alternative fuels and repatriating capital abroad from U.S. subsidiaries. Influential legislators, particularly in the Senate, are likely to push for inclusion of other provisions in the second tranche if they are excluded from the first. Sen. Ron Wyden (D-Ore.) last week mentioned health-care reform as a way to help stabilize markets. Sens. Jim Bunning (R-Ky.) and Jon Kyl (R-Ariz.) prefer incentives for business investment and individual saving rather than spending incentives such as the $600 individual tax rebates. And several members on the House tax committee, including chairman Charles Rangel (D-N.Y.), want to extend unemployment insurance. A second tranche likely would hinge upon some kind of a trigger, such as unemployment rising precipitously. The “trigger proposal” was pitched by former Reagan Administration economist Martin Feldstein, now a Harvard economics professor. The Senate Finance Committee will meet this week to mark up a stimulus bill, which will build upon the House bill, committee chairman Max Baucus (D-Mont.) told reporters last Thursday. Mr. Baucus said he will push for speedy action on the bill, noting that “nobody wants to be responsible for holding up a good stimulus package.” A second-tranche stimulus could take longer and be prone to more earmarks, though it would likely adhere to “pay-go” rules, which require corresponding spending cuts and tax increases to offset tax cuts, lawmakers told Financial Week. This initial stimulus is expected to pass without adherence to pay-go. Lawmakers aren’t the only ones seeking more provisions. Liberal groups and unions criticized portions of the House stimulus agreement, saying it won’t deliver enough benefit in time. The Center for Budget and Policy Priorities said a temporary boost in food stamp benefits and an extension of unemployment benefits would deliver “the most bang for the buck.” The CBPP also stated that the stimulus package’s business tax cuts would cost states at least $4 billion in tax revenue, leading to further budget cuts in state health-care and education programs. Unlike the federal government, states are required to balance their budgets. State fiscal relief is another provision many legislators—particularly those from hard-hit states such as Michigan and Ohio—will request. Business groups, such as the U.S. Chamber of Commerce and the National Association of Manufacturers, also had been lobbying to include tax exemptions and spending projects. But the tight deadline left little time to include many of these projects. Both the Treasury Department and Mr. Rangel have proposed ways to lower the top corporate tax rate in exchange for eliminating or paring back various tax credits and exemptions. Although both ideas were widely considered “debate generators” rather than serious proposals, especially since this is a presidential election year, a major economic downturn could reinsert such proposals into the public discourse. Some had been holding out for the Federal Reserve to add liquidity to markets to avoid a recession, but Congress has been unwilling to wait to see if rate cuts alone will stimulate the economy. Last Tuesday, the Federal Reserve cut the federal funds and discount rates by 75 basis points each, surprising analysts, who expected the central bank to wait until its regularly scheduled meeting this week. The cuts, which brought the federal funds rate to 3.5% and the discount rate to 4%, were opposed by St. Louis Fed president and fiscal hawk William Poole, who believed there was no reason for the Fed to act in advance of its meeting. Experts predict that an additional 50-basis-point cut will be approved this week. FW
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