The stimulus package is likely to help companies like Emerson Electric (
EMR), General Electric (
GE), Jacobs Engineering (
JEC), Chicago Bridge & Iron (
CBI) and Caterpillar (
CAT).
We now have a rough outline of what the economic stimulus package will look at. The total size is set at $825 billion. Here are the key components, along with my thoughts on each (or at least most) of them:
Tax Cuts - $275 Billion:
Cutting payroll taxes by $500 per individual and $1,000 per family. Not the best bang for the buck, since much of it may be used to pay down debt or otherwise be saved. However it seems like a good idea in any case.
Restoring the balance sheet of the household sector, particularly of the lower and middle parts of the income spectrum would be a very good thing for the economy in the long run. In their role as taxpayers, individuals would be taking on debt at about 3% or less, and in their role as consumers might be paying down debt with rates as high as 18% if they pay down credit cards. Nice interest rate arbitrage there.
The package also includes tax loss carry backs of 5 years instead of the usual two for corporations. This looks like a total waste of money to me. The biggest beneficiaries would be banks and homebuilders.
We are doing lots already to help the banks, and honestly the economy needs to see most of the big homebuilders go out of business so excess inventories can be worked off. Accelerated depreciation or greater expensing of capital assets would be a better way to aid businesses and stimulate the economy. To my mind, this is the weakest part of the whole package.
Aid to States - $119 Billion:
The biggest part of this is to help states pay for Medicaid at $87 billion. There is also $25 billion targeted to help maintain public safety and other critical services, and $7 billion directly targeted to help keep law enforcement going.
States are generally prohibited by their constitutions from running deficits (although they have been able to find ways around that in the past) and have seen two of their biggest revenue sources dry up, sales taxes and property taxes. Without aid they would have to dramatically cut back on services, laying off many state workers and adding to the unemployment roles.
In some states like California, the projected deficits are so deep that the hole could not be filled even by cutting more than 75% of employees.