Stimulus Package
Infrastructure Energy Spending
Troubled Asset Relief Program (TARP)
January 21, 2009
I am attempting to keep you informed as data comes to us in regard to the TARP, Stimulus Package, and Infrastructure Energy Spending programs.
Within the next three weeks there will be information presented to reform sketchy and incomplete parts of these three programs. The TARP program has not been able to do enough soon enough and many of the aspects are not clear to the average American. The new objective is to get banks strong enough where they can lend. There will be reforms to the body of this program.
One question that many of us have asked is why the banks do not lower interest rates so that borrowing can begin again. The government will back part of the interest fees charged to customers. (like a guarantee) (i.e. if the bank charges 6.5%, the government might be responsible for 1.00%). The objective is to get banks and real estate flowing again.
The government is looking at buying the bad “paper” (assets) off of the banks balance sheets and assuming the debt on that “bad paper”. Thus clearing the banks balance sheets of toxic assets and impede lending. One stipulation would be that the money flow to small business and to community banks and small mortgage holders.
The problem was that banks kept on buying each other’s “bad paper”. It sold over and over again. The TARP money given to the banks the first time was held onto out of fear because the banks still held the “bad paper”. So nothing changed much with the first TARP disbursements. The government acted quickly to forestall any further damage during an economic crisis, or any more bank failures. . The government did not buy assets, just leveraged assets for the banks. The banks held onto the money out of fear. They did not loan it out. Lehman Brothers failure plunged us further down. But at that time the government did not have the authority they needed to act fast enough. Let’s hope, that this time, good economic sense will be used along with oversight.
We are looking for a substantial amount of tax incentives to work very quickly. More than 40% of the revised program will deal with tax incentives and changes to the tax system. So, it is extremely important to keep you informed. Some of the changes were addressed in our yearly tax letter 2009.
I am looking for a corporate tax rate decrease. Call it wishful thinking, but it would make good sense for Gross domestic product and growth inside the United States in the next five years. Our corporate tax rates are higher than any other country. A lot of our production has been sent overseas.
This leg of the TARP will be $825 billion. Less than $4 billion being put into the economy through tax cuts and incentives for business by the end of 2009. This includes reduced federal withholding tax on wages of about $10.00 per week to the average working American.
Government wants to promote growth in States with federal grants, Medicare and Medicaid programs. No details on that at this printing. Infrastructure energy spending as the program stands now is 7% of the $850 billion. The government stating that it wants to get resources out the door quickly and add money to things that make our economy more productive in the future.
I have hope that we are looking at relief in several forms for small business.
That’s all for today.
Lynda H. Startzman
