Last week, President Obama announced a slew of measures and proposals in an attempt to kick-start the economy; from hefty tax breaks for businesses to rolling out cash to fund infrastructure projects. The good news is, from a big-picture perspective, some of these proposals address the problem of private hiring (or lack of it to be exact).
A cynic would question how much of this is politics ahead of the mid-term elections?
The U.S. Congress returns to session for a limited period of three-to-four weeks before lawmakers leave Washington again for a final burst of campaigning. Whether interest in these latest proposals will be sustained after the elections remains to be seen. It will depend on the outcome of the elections, of course.
One of the centerpieces of these proposals is a useful policy idea for businesses that has been advocated for years - 100% expensing of most capital expenditures for 16 months.
It would be a boost to capital-intensive activities, but here's the issue: In the real world, how likely are business owner-operators able to re-tool a factory in any substantive way in the next 16 months? Are companies likely to to expand expenditures in a U.S. location, a multi-year commitment for capital and jobs, on the basis of a temporary tax savings? How much of an incremental benefit would it have for American workers and business owners?
If the proposal passes, the main impact will be to shift 2012 expenditures into 2011; shifting demand forward that would have occurred anyway and subsidizing the cost of projects that are already in the pipeline. After this acceleration of expenditures, there could very well be a big falloff during 2012.
Sounds familiar?and the recently expired housing tax credit are examples of shifting demand from one period to another. What we need is real expansion, not shifting expansion from one year to another.
The proposal's impact on the economy as a whole could also be neutralized by the President's pledge to make the package "budget neutral"; the new proposed tax cuts are to be fully offset by tax increases on other businesses. So someone, somewhere ultimately still has to pay the price.
The scale of these tax shifts from one business to another, even if they add to economic efficiency, are dwarfed by the wage, job, and investment hindrances in bills like the energy tax (cap and trade), the private business and estate tax increases scheduled for Jan 1, talk of a national consumption or sales tax, and the health care bill. Each one of these is several times the size of this latest proposed stimulus package, and they are much further along in the legislative pipeline.
These new proposals add to the climate of uncertainty along with the existing stack of other legislation. We are once again faced with ambiguity that makes investment decisions more challenging.
But there may be a small ray of sunshine that Washington is recognizing that private employment growth is lagging and that it has something to do with the policy mix.
The administration and politicians in the Capital seem to realize now that jobs matter.
Finally the focus is less on bailouts and more on creating jobs. And that is the path out of the difficult downturn.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at email@example.com.