Goldman's Take On Obama's Flurry Of Fiscal Micro-Stimulus Programs: Complete Dud

Tyler Durden's picture

Now that the administration is in full panic mode with just two months away from the mid-terms and facing a record low approval rating, it is throwing the kitchen sink at the DOL and BLS to make sure it doesn't enter November with 10% unemployment rate. Over the weekend, we saw a flurry of micro stimulus programs announced by the president, which will have no measurable long-term impact, and in some cases result in growth declines in the future, yet likely result in a very short period of Cash-4-Clunkerseque sugar high boost to the economy. Here is Goldman's summary of the most recent set of proposals, on which Jan Hatzius' take can be simply summarized with just one word: "dud"

The White House has announced three new measures to stimulate growth: 100% up-front depreciation of capital investments; a permanent and slightly expanded R&D tax credit; and $50 bn in infrastructure spending. They could be helpful but are unlikely to have a large effect on growth for four reasons: (1) some of them cover multiple years, spreading out the fiscal impulse; (2) the incremental effect is smaller than the headline numbers imply, as some are modifications of existing proposals or policies and one is essentially an interest free loan; (3) the president proposes offsetting the cost of some of the proposals with targeted corporate tax increases of an equal amount; and (4) the likelihood of enactment of some of these proposals is low.

Key points:

1. Bonus depreciation. The president proposes to allow companies to deduct 100% of the cost of capital investments (not including real estate) made in 2010 and 2011. Press reports cite White House estimates that the proposal would lower corporate tax receipts by $200bn. However, almost all of this revenue loss would be temporary, since the additional deductions taken now would lower deductions in future years, effectively making this an interest free loan. Given current low levels of capacity utilization, the benefit of additional investment is low to begin with. Our previous analysis indicated that the 50% bonus depreciation provision effective for 2008 and 2009 had a relatively small effect on investment. To the extent it does have an effect, it is likely to pull forward demand into the quarter just before expiration (in this case Q4 2011) so the near term effect should be even more modest (and indeed the effect in early 2012 would be negative). Whatever effect the provision would have would also be weakened somewhat by the proposal to raise corporate tax revenues (through closing of “loopholes”) to offset the proposal’s cost.

2. R&D Tax credit. The president is expected to propose to increase and make permanent the research and development tax credit, at a cost of $100bn over ten years. This proposal is somewhat less than meets the eye, since the president has already proposed to make the credit permanent at a cost of $80bn. This leaves an incremental proposal worth around $20bn, or $2bn per year. Nevertheless, enactment of this proposal would be helpful on the margin, since the existing R&D credit lapsed at the end of last year and has yet to be renewed by Congress.

3. Infrastructure. The president proposes to spend $50bn on transportation infrastructure projects, as part of a six-year plan. We take this to mean a front-loading or incremental investment on top of the six-year reauthorization of surface transportation spending programs that has been pending in Congress for most of the year. For context, a $50bn addition to infrastructure spending is roughly on par with the investments made in that sector in the 2009 Recovery Act. If enacted, this could provide an important boost to growth, particularly in 2011. However, the likelihood of enactment in the near term appears low. Also, offsetting the otherwise positive effect is the proposal to offset the entire cost with the repeal of tax incentives for oil and gas companies.


4. Process from here. There are two likely scenarios for consideration of the tax-based measures. First, the Senate will vote on small business legislation next week, which already includes a 50% depreciation bonus for 2010. This provision could simply be modified, to bring it into line with the president’s depreciation proposal, in which case it could be enacted in the next few weeks. The second scenario is that the tax measures could be added to upcoming legislation to extend the expiring 2001/2003 tax cuts, which will be debated in late September. Adding corporate tax cuts to that legislation might allow Democratic leaders to attract enough votes for passage without extending the upper-income tax rates that most Republicans support. However, given that legislation's uncertain prospects, adding these measures to it could also risk delaying enactment until after the November election.  Infrastructure spending would be dealt with separately from the tax measures; the most likely scenario is that it could be considered after the election as part of the next stop-gap extension of the highway program, which expires December 31.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sudden Debt's picture



Carl Spackler's picture

Desperate people call for desperate measures.

vote_libertarian_party's picture

Dud?  DUD!?!?!?!


Can't they see we have rallied 20 pts from the DJIA low today.


Surely that is a sign we have turned the corner on such skilled management of the economy.

putbuyer's picture

Obama couldn't run a hot dog cart.

Sudden Debt's picture

Don't underestimate Obama when it comes to catering!

I've heard his chain of "Soup kitchen's across America" are doing a double digit growth EVERY MONTH!

I can't wait to buy some of those stocks when they launch the IPO!

John McCloy's picture

  This is a token vote buy of the unions as to be expected. This is a  literal ditch digging operation. These politicials are so transparent now we all expected a mini cash bonanza of goodies before election so now they can one again spout rheotric on the platform that:

  • See we are sending money directly to the middle class of America
  • See we care about small business
  • See we care about union workers please remember to vote for all Dems in November

"If approved by Congress, the infrastructure money would be used to build or repair 150,000 miles of road, 4,000 miles of railroad track and 150 miles of runways, the officials said. The proposal includes creating an 'infrastructure bank' to prioritize projects and attract private funds."

 And they are purposely trying to keep the package small enough to so that Republicans do not vote against the bill. It is a joke they talk about infrastrucutre but it is road paving package and where are the high speed rails that actually would be productive if we an shrink commuter time to and from work? Supposedly there is intentions to use some of the money for high speed rail but this will be a rushed project just to get money to unions without little planning in how to build a network of high speed rails that beneficially for the entire nation. This entire country needs efficient high speed rails for commuters in all high population metro areas and into the burbs in order to alleviate commuting time, traffic congestion and raise property values in rural areas.

    They need to be building Maglev lines the entire Lenth of Long Island, The Metro-North lines into Connectuct, New Jersey and from NYC into Pennsylvania into areas such as Bucks County. These trains could do well over 240mph and turn 2 hour commute into a 45 minute commute.

trav7777's picture

we don't need maglevs.

Most metro areas have no rail service whatsoever.  Just having ANY train that worked would be a huge plus.  I'd settle for a 70mph light rail, something cheap and efficient and visible ALL throughout Europe.

We can save the mega rail TGV stuff for intercity trunks.  These trains can already exceed 200mph.  Bear this in mind:  Japan and Europe have had 300kph trains for 3 decades now.

imapopulistnow's picture

Trains.  A 19th century solution to the 21st century economy?

Carl Spackler's picture

Precisely, imapopulistnow.

Why not just revert to horse and buggy and use the dung to generate electricity to power the Internet?



trav7777's picture

Well, Obama is a huge dud.  Remember all the hype in his campaign and election?  Has there ever been a bigger letdown than this?

Re-read the point #1...low capacity utilization.  There is no demand for further credit or capacity.  Therefore, the government must spend on things which will never generate a positive rate of return.

With this 800lb gorilla operating in the market, how can anyone expect rates to climb?  The government is willing to borrow at 1% to generate a return at -5% or worse.  Can't compete with that. 

The economists can't understand the dynamics of contraction - all they understand (superficially) is the system of growth.  In a contractionary climate, demand for credit is inamenable to stimulation.  Reality won't change on account of interest rates.

Sudden Debt's picture

and if you want to see how a real metro line should work in the year 2010, go visit Delhi in India or Hong Kong.

SteveNYC's picture

Was just in HKG, the airport/Kowloon/City metro is a real piece of work. Very cheap, extremely fast, almost no sound, clean, efficient.......where the fuck is the JFK/Manhattan equivalent? Unbelievable.

Paper CRUSHer's picture

Obama:"C'mon unc',$50billion.....right here,right now"

Uncle Sam:"You ain't got the balls to do it"

Obama:"Dont f*** with me old man"

Sudden Debt's picture


Ancona's picture

This just keeps gets more ridiculous my the minute. How many more dollars do they want to throw at sucking future demand out of the market?


These people are insane.

Sudden Debt's picture

It's actually a proven fact that these tactics work:

Here is the proven fact on which Obama made his decisions:

the grateful unemployed's picture

In Germany they take every car off the road when it is seven years old. (A Logan's Run on the Autobahn?) Evidently they don't have a vintage car industry.

ColonelCooper's picture

Apparently in Germany then, they don't let you stretch your payments out ten years, then roll your bad debt into your new car loan.  Hmm.  So how are you supposed to to buy a new car when you're upside down on your old one?


Sudden Debt's picture

Actually they have some lease programm that works like this:

You buy a 50.000 euro car and downpay 700 euro a month

After 120.000km you got tired of it and change in the old car for a new one.

You keep paying the 700 and you have a new car every 4 years.

The old cars as mostly sold to Russia or the middle east where they pay a bit more then the rest value of the car.

System works you know :)   

The car is actually never yours but who cares?


ColonelCooper's picture

I should have: /sarcasm

What you're describing is the same as leasing here, but perhaps with less restrictive mileage. 

Maybe we should start doing the same thing here, but instead of selling them to Russians we can GIVE them to illegal aliens.  See?  I'm fixing the auto industry,,,, "Obamastyle!"  Not to mention helping millions of illegals obtain reliable transportation to and from their places of employment.


Diggintunnels's picture

Why not just crush them and send them to China as scrap?  That increases GDP right? Because then we all need new cars every 7 years.  Then the government can give us a tax credit to write off the residual debt.  Then the government could borrow from China to pay for the tax credit.  Then the money fairy shows up and gives the government the money to pay back China.  Wash rinse repeat.  Hmmm, now where does that logic break down...   I've heard so many variations of "The broken window theory" lately that I'm going to be ill. 

ColonelCooper's picture

The problem with your idea is that it doesn't contain an element of redistributive justice.  If you wanna rock it "Obamastyle!" you gotta learn to right some wrongs while you fix my economy.

Moonrajah's picture

Um, shouldn't that be 'write some wrongs' if it is Obama we are talking about here?

Missing_Link's picture

Goldman turning against their own stooge?  To think that they were his #2 corporate campaign contributor and are now dissing the guy they helped put in office.  Amazing!

markar's picture

the stooge has served his purpose. The Wall St. boys see the handwriting on the wall.Time to turn him out.

Bear's picture

The are now the Grateful Dead of Bonusville

glenlloyd's picture

I'd like to see a vid of Larry Summers in full panic mode.

Carl Spackler's picture

You mean "the leader of the superstar team of economists Obama has assembled" Larry Summers???

Overpowered By Funk's picture

Fiscal micro - stimulus programs = turd in swimming pool.

Diggintunnels's picture

LOL, impossible to read comment without envisioning scene from Caddy Shack in my head...

DavidC's picture

"I'd like to see a vid of Larry Summers in full panic mode."

Easier to find one him asleep...


tahoebumsmith's picture

Déjà vu? Don't you think there is already enough of these signs across America? I wonder if Goldman is somehow tied in with the production of these signs? What a total waste of money... Now get back to something more productive, like weather stripping some more houses! LOL

Lapri's picture

GS should be all for the $50B infra. They will probably get to run the infrastructure bank with all the expertise they've accumulated - securitization, leveraging, and getting money from taxpayers when the whole thing blows up, and getting the collateral (=infra).

Moonrajah's picture

Nah, when it comes to financing infrastructure projects GS ain't got shit on JP Morgan. They have basically set a new standart with the Jefferson, Alabama sewer system.

Watch and learn, boys! Watch and learn.

Jean Valjean's picture

Talk about uncertainty!!  The announcement regarding 100% depreciation comes 1 week before IMTS (International Machine Tool Show) the largest machine tool show in the US.  Will this proposal pass?  If it does, when?  If it does, will it be retroactive to today or will congress change the start date?

My guess, this will dampen sales of machinery next week, due to the uncertainty, and will piss off all the machine tool OEMs big time.

Jean Valjean's picture

By the way, Goldman doesn't like these because they (attempt to) help real businesses rather than the blood sucking type and they want all largess for themselves.

Grand Supercycle's picture

DOW/S&P500/FTSE/EURO short signal continues :