Obama’s Infrastructure and Business Investment Plan Would Take A While to Show Much Effect

Yesterday, President Obama announced a six-year $50 billion program to rebuild 150,000 miles of highways, to lay and maintain 4,000 miles of rail lines, to restore 150 miles of runways, and to put the NextGen air traffic control system in place. Tomorrow in Cleveland, he is expected to announce full expensing for all businesses of qualified investment made by the end of 2011. These a reasonable next steps to sustain the economy as the American Recovery and Reinvestment Act spending tails off, but most of the impact would be felt after 2012, and it’s doubtful that the Senate would pass these proposals this year in any event.

Last January, Congressional Budget Office Director Doug Elmendorf presented some very useful testimony on the impact of various stimulus proposals on GDP and employment. Table 1 on page 11 shows CBO’s estimates that infrastructure investment begun in April, 2010 would raise GDP between 0.5% and 1.2% over five years, CY2010-CY2015, and would take two years to raise employment by between 2 and 4 years of full-time equivalent employment per $1 million spent, or between 100,000 and 200,000 FTEs over six years from the $50 billion proposed. CBO estimated expensing would raise GDP by 0.2% to 1.0% over five years and would raise employment by between 1 and 8 FTEs per $1 million of budgetary cost cumulatively over the same period. That’s not a whole of lot employment compared to the 14.9 million currently unemployed.

Then there’s the issue of paying for these proposals or adding their cost to the national debt, which is skyrocketing past 62% of GDP at the moment. See Table 1-6 on page 23 of CBO’s August Update. Mr. Obama is expected to dust off some of his proposals to raise taxes on U.S. multinationals to pay for the expensing provision.

Meanwhile, Congress will return next Tuesday with little prospect of passing President Obama’s proposals before the election or even this year. The Republican appear poised to take the House and to come close to taking the Senate on November 2, which seems likely to freeze policymaking on Capitol Hill until early next year.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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