Finally some good news from Obama

The NY Times is reporting this morning that President obama is going to propose to Congress a plan that will allow all businesses to expense 100% of their capital investments upon purchase for the next year and a half. This will reduce the cost of investments and it should spur the economy to grow more quickly. If this story is accurate, it is a good move by the administration. I can only say that it is about time we get something good.

There are still many unknown details about the plan. For example, will it be restricted to items that are put into service in the USA as it should be? Will it be restricted so that it covers items purchased in the USA as it should? Will it cover all capital items or is it limited in some way? For example, if a business buys a new warehouse, will that be included? We will have to wait and see.

One thing is certain; an increase like this in the ability of busines to write off investments should act as a spur to growth. The after tax cost of investments will fall, and cheaper investments mean more investments. The need for business loans will be reduced since cheaper investments mean less need for borrowing. This will help get money out to the small businesses that have been having difficulties getting loans of late. An increase in plant and equipment means that there will be more jobs since people need to be hired to operate these items.

There is a problem on the horizon, however, that has not yet been addressed: how will the government pay for the cost of this plan. According to the Times article, the cost in the first year will be between 200 and 300 billion dollars, but the ten year cost is around 30 billion dollars. Fortunately, only the 30 billion dollar cost matters in Washington. Hopefully, Obama will not couple this plan with another business tax that raises 30 billion dollars. That will only undo some of what the new plan accomplishes. The best source of funds to cover the cost of this plan is to take it from the unused stimulus funds. We still have hundreds of billions unspent in that account. What more fitting use for stimulus funds than to take them away from the first stimulus which was not directed towards actually stimulating the economy and moving them towards a true economic stimulus.