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Obama Stimulus: Will It Work?

Wall Street is keeping a watchful eye on the $825 billion economic recovery bill in Congress. The legislation is unprecedented in its scale and reach. Two-thirds spending and one-third tax cuts — virtually everyone living in the United States would be affected by the plan.

But it doesn’t come cheap. The massive price tag is equivalent to 3% of GDP. In inflation adjusted dollars, that's more expensive than the Louisiana Purchase, the Vietnam War - even FDR’s New Deal, itself.

Here’s what you get for your money.

Income Tax Relief

A $500 tax cut would reach 95 percent of workers and $1,000 for working couples. First-time home buyers purchasing homes between Jan. 1 and June 30 would get a $7,500 tax credit, and local school districts would be spared severe cuts as state and local governments budgets collapse — to the tune of $120 billion over the next two years.

Will Obama Stimulus Work?

However the measure does not include money to help middle- to upper-income taxpayers ensnared in the alternative minimum tax, which was designed originally to prevent the extremely wealthy from avoiding payment of taxes but now threatens more than 20 million tax filers.

At the same time, lawmakers departed significantly in one area, jettisoning as unworkable the incoming administration's plan to give a $3,000 tax credit for each new job created by private companies.


House Speaker Nancy Pelosi, D-Calif. seems proudest of the measure's investments in renewable energy and science, including $32 billion to upgrade the nation's electrical distribution system, more than $20 billion in tax cuts to promote the development of alternatives to oil, and billions more to make public housing, federal buildings and modest-income homes more energy efficient.


The measure also contains about $90 billion for traditional infrastructure projects such as road and bridge repair and construction, modernizing federal buildings, clean water and flood control projects, and rail and mass transit construction.


The measure helps the poor, unemployed and people who have lost their health insurance. Food stamp allotments would increase 13 percent, or about $20 a month, while the unemployed would see their benefits extended and increased by $25 a week.

People who lost their jobs after Sept. 1, 2008, could have the government pay almost two-thirds of their health insurance premiums under the COBRA law. Poorer people who have been fired recently could get health coverage through the Medicaid program.

States would get $87 billion worth of help with their Medicaid budgets over the next two years.

Other Items

Other items in the measure include funds for state and local law enforcement, extending broadband service to rural and other underserved areas and $20 billion to computerize health records, a key priority of the incoming president.

There's also money for fresh sod for the National Mall and millions of $40 coupons to help people adapt their old televisions for digital signals, raising questions about how efficient the legislation would be in creating jobs. Even bill drafters such as Appropriations Committee Chairman David Obey, D-Wis., admit that much of the money won't flow into the economy immediately.


“I think tax cuts will have some small impact on recovery,” muses CNBC’s Larry Kudlow. As for the stimulus spending Larry Kudlow isn’t terribly optimistic. He says, “the massive spending package probably won’t make jobs, productivity, or wealth.

And House Republicans are aghast at what they see. "My Democratic colleagues think they can borrow and spend their way back to prosperity," said House Republican leader John Boehner of Ohio.

Whatever doubts there may be about how effective the plan would be, it's on a fast track through Congress in hopes of reaching Obama's desk within a month.

What do you think? Tell us now.

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Trader disclosure: On Jan 19, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Karabell Owns (AAPL), (GOOG), (JPM), (TSO), (TC); Seymour Owns (AAPL), (BAC); Seygem Asset Management Owns (COP)

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