It appears that a compromise in the economic stimulus plan could be reached as early as Friday and signed into law by President Obama on Presidents Day. But the question is will the Obama economic stimulus plan do enough to get consumers spending or is it a short term solution to get us through the recession instead of getting us out of it?

“I think (doing) nothing would have been better,” said Ed Yardeni, an investment analyst who’s usually an optimist, in an interview with McClatchy Newspapers. He argued that the economic stimulus plan fails to provide the right incentives to spur spending.

“It’s unfocused. That is my problem. It is a lot of money for a lot of nickel-and-dime programs. I would have rather had a lot of money for (promoting purchase of) housing and autos. … Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession. They are actually providing less short-term stimulus by cutting back, from what I understand, some of the tax credits.”

The House and Senate negotiators have narrowed the differences between their economic stimulus plans. In doing so they scrapped a large tax credit for buying automobiles that would have caused positive ripple effects across the manufacturing sector. They settled instead on letting purchasers of new vehicles deduct from their federal taxes the state and local sales taxes on the cars they bought. Will this economic stimulus line item really incite people to spend?

The exception to this is for buyers of plug-in hybrids, cars that run off a battery that can be charged at home or in the office. Buyers of these vehicles, available in very limited supply, could get a tax credit of up to $9,100.

A Republican-backed proposal that would have provided a $15,000 tax credit to first-time homebuyers also was scaled back dramatically. Instead, the compromise provides first-time homebuyers a tax credit of up to $8,000, and it doesn’t have to be repaid over the life of the mortgage. Incentives already in place offer buyers a $7,500 credit that must be repaid, so the bill is an improvement, but short of what many economists think is necessary.

Another reason that some analysts frown on the stimulus is the social spending it includes on things such as the Head Start program for disadvantaged children and aid to NASA for climate-change research. Both may be worthy efforts, but they aren’t aimed at delivering short-term boosts to economic activity.

“All this is 25 years of government expansion jammed into one bill and sold as stimulus,” said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

The exception to this is for buyers of plug-in hybrids, cars that run off a battery that can be charged at home or in the office. Buyers of these vehicles, available in very limited supply, could get a tax credit of up to $9,100.

A Republican-backed proposal that would have provided a $15,000 tax credit to first-time homebuyers also was scaled back dramatically. Instead, the compromise provides first-time homebuyers a tax credit of up to $8,000, and it doesn’t have to be repaid over the life of the mortgage. Incentives already in place offer buyers a $7,500 credit that must be repaid, so the bill is an improvement, but short of what many economists think is necessary.

Another reason that some analysts frown on the stimulus is the social spending it includes on things such as the Head Start program for disadvantaged children and aid to NASA for climate-change research. Both may be worthy efforts, but they aren’t aimed at delivering short-term boosts to economic activity.

“All this is 25 years of government expansion jammed into one bill and sold as stimulus,” said Brian Riedl, the director of budget analysis for the Heritage Foundation, a conservative policy research group.

Others shared a similarly dim view. In a brief on the stimulus compromise, William Galston, a senior fellow at the center-left Brookings Institution and a former Clinton White House adviser, warned Thursday that a bank-rescue plan being finalized will make the $789 billion look like “pocket change.”

“While the stimulus bill is a necessary condition for economic stabilization and recovery, it is hardly sufficient,” Galston wrote. “As the lesson of Japan in the 1990s shows, fiscal stimulus without financial rescue yields stagnation - at best.”

Galston further wrote: ” … Serious observers believe that recovery cannot begin until we acknowledge that losses in the financial system amount to some trillions of dollars, rendering many institutions insolvent. The temptation will be to muddle along, hoping that these institutions can gradually regain strength without putting massive amounts of taxpayers’ money at risk. If we go down that road, we are likely to end up with zombie banks whose balance sheets are riddled with near-worthless investments - banks that cannot lend to credit-worthy customers and who cannot trust one another.”

With the economy in a tailspin, doing nothing isn’t an option, however.

“Something is better than nothing, and bigger was better than smaller in terms of the stimulus needed,” said Chris Varvares, president of prominent forecaster Macroeconomic Advisers in St. Louis. “The economy needs a fiscal jolt.”

Even some proponents of a stimulus are disappointed, however. Harvard University economist Martin Feldstein, a former adviser to President Ronald Reagan, was an early supporter. He said that government is now the only engine left to spark economic activity, but he said that the compromise falls short of what’s needed.

“If the choice is between the current bill and an improved bill, I would say wait and improve the bill,” Feldstein told CNBC on Wednesday after the compromise was announced. “I am disappointed with the structure of this bill.”

At the end of the say, both the Senate and House will compromise on the obama economic stimulus plan becasue the government economic stimulus is the last car left in town to “jump-start” the economy - and Congress is the “cables”.

source: Kansas City Star

The Senate Republicans and Democrats came together today in offering tax relief to Americans looking to buy homes in 2009. If approved, the Senate proposal would give a tax credit up to $15,000 for anyone buying a house.

How is this good for the American home buyer? Currently, there is a $7,500 tax credit for home purchases - but the money must be repaid.

The proposal was pushed by Republicans who favored targeted tax credits over no-strings rebates. The Senate measure, if it becomes law, would provide a credit of 10% of the home purchase price, up to a maximum credit of $15,000.

Real estate industry groups have backed such a credit as a way to spur demand for homes.

The reason for the proposal is obvious, to stimulate the home housing market which would then help generate new jobs and trigger the economy.

The homebuyer tax credit offered by GOP Sen. Johnny Isakson would apply to any home purchased as a main residence and would cost taxpayers $19 billion. Senators approved it by a voice vote, adding the idea to President Barack Obama’s economic recovery bill.

According to Bloomberg, on average,the wealthiest Americans income doubled in the first six years of the Bush administration due to a 17.2 percent tax rate reduction.

The 17.2 percent tax rate in 2006 was the lowest since the IRS began tracking the 400 largest taxpayers in 1992, although the richest 400 Americans paid more tax on an inflation-adjusted basis than any year since 2000.

The drop from 2001’s tax rate of 22.9 percent was due largely to ex-President George W. Bush’s push to cut tax rates on most capital gains to 15 percent in 2003.

Capital gains made up 63 percent of the richest 400 Americans’ adjusted gross income in 2006, or a combined $66.1 billion, according to the data. In all, the 400 wealthiest Americans reported a combined $105.3 billion of adjusted gross income in 2006, the most recent year for which the IRS has data.

“The big explosion in income for this group is clearly on the capital gains side, although there are also sharp increases in dividend and interest income,” said Dean Baker, co-director of the Center for Economic Policy and Research in Washington.

In addition, “they are realizing more of their gains due to the lower tax rate,” Baker said.

The data show that the population of the top 400 income- earners has fluctuated over the 15 years the agency has tracked it, according to an analysis by the Washington-based Tax Foundation, a research group. Some 3,305 different taxpayers have been included at least once on the list, the Tax Foundation said. Only 27 percent of those taxpayers have appeared more than once on the list, and only about 15 percent have been on it more than twice.

Ammunition for Democrats

The data may provide ammunition for Democrats such as House Speaker Nancy Pelosi who say they intend to increase the capital gains tax rate even as the credit crunch roils markets and is producing more investment losses than gains.

President Barack Obama pledged during the presidential campaign to increase the rate. He has said he wants to let the rate rise to 20 percent for families making more than $250,000 and eliminate it for small businesses.

“My guess is that Obama still will not rush to do anything on this” because of likely negative reactions from Republicans and the stock market, Baker said. “We’re talking late in the year or early next year.”

The richest 400 Americans collectively paid $18.1 billion in taxes in 2006, the highest in the 15-year period and 1.77 percent of all income taxes paid in the United States; on an inflation- adjusted basis, the dollar amount was the highest since 2000.