Boosting the Economy with a 'Stealth' Stimulus

Washington Matters

Boosting the Economy with a 'Stealth' Stimulus

Finally, health care reform is sharing the stage in Washington with another domestic issue: Economic stimulus legislation. News that the unemployment rate hit 9.8% in September has spurred lots of talk about new measures to give the economy another boost. It's a good bet that Congress will act on some of those measures this fall. But you'll see no screaming headlines about Congress passing Stimulus II. In fact, you might call it the stealth stimulus package.

Here's the problem: Democrats have taken a lot of heat from small-government-is-better Republicans for passing a stimulus bill back in February that will cost nearly $800 billion over 10 years. While congressional leaders feel the need to take action to get job creation going well in advance of the 2010 midterm elections, they also want to avoid charges of letting deficits balloon and government spending run amok, which they fear will not sit well with voters going to the polls a little more than 12 months from now.

So a big fat stimulus bill is a nonstarter. And a proposal that was generating a lot of buzz over the last two weeks as a possible centerpiece for a stimulus bill -- giving companies a tax credit for hiring the unemployed -- may be fading as well. The idea of a tax credit for job creation was floated during debate over the first stimulus, but didn't make it into that earlier package because of concerns that it was unworkable: Critics have warned, for example, that it would be too easy for a company to go out of business, regroup and label all its workers as new hires, just to grab the credit. With those concerns starting to resurface, Democrats may back away from passing a big expensive tax incentive, especially if they fear that it may not work as intended.

Instead, what you'll see in the job creation area is more help for businesses' bottom line. The theory is that if companies get healthier financially, they'll start adding to payrolls. An example of this help is bonus depreciation, which lets businesses write off a bigger chunk of their equipment purchases in the first year than they would be allowed to otherwise. Bonus depreciation is scheduled to expire at the end of this year, but lawmakers will look seriously at extending it through 2010. Another idea, one favored by President Obama, would expand a tax break that lets small businesses apply current-year losses to tax returns going back five years, instead of the usual two. Bigger firms want in on this write-off, and may well get their wish.

But the largess won't end with businesses. With their gaze firmly fixed on November 2010, lawmakers will be sure to extend unemployment benefits that are running out for hundreds of thousands of jobless individuals. As part of that legislation, Congress is also likely to extend a law that gives folks laid off from their jobs since Sept. 1, 2008, a subsidy for buying COBRA health coverage through their former employers.

There's no doubt that the scramble is on in Congress to light a fire under the economy, and to do so before this year's legislative session ends. Just don't use the word stimulus. Not in public, anyway.

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