President Obama Proposes Targeted New Measures to Stimulate Job Creation

Roughly $600 billion in estimated outlays under TARP have been offset by roughly $140 billion in earlier-than-expected repayments from the major banks. In addition, the federal government has received significant dividend payments and will see capital gains from the warrants it received in exchange for capital injections. Thus, the federal government has about $250 billion of "room" under the TARP program to potentially either fund new stimulus initiatives or reduce the projected federal government borrowing requirement for fiscal 2010.

The president's speech today outlined four major areas that he recommends Congress should focus on:

1. Small business initiatives: increase guarantees and waive fees for Small Business Administration loans (could be funded under TARP); eliminate of capital gains taxes on small business; offer further extensions of "write-offs" (accelerated depreciation and other investment incentives); and offer new tax credits to hire and retain employees.
2. Additional infrastructure spending: increase spending beyond the ARRA budget.
3. Federal incentives for energy-efficiency upgrades: new program to provide incentives for retrofitting homes to become more energy efficient.
4. Further extensions of emergency relief for seniors, unemployment benefits, COBRA, and transfers to state and local governments, also provided under the ARRA.

The president's speech was short in terms of the details. He did not specify how much of the remaining resources from TARP should be dedicated to deficit reduction versus additional stimulus spending. Nor did he specify any targets for spending under the four areas that were highlighted in his speech. Effectively, the president has hit the ball into Congress's court, for it to work out the details.

The problem right now is that Congress is overwhelmed with a range of high priority legislative measures ranging from healthcare reform to financial regulation. How soon Congress will be able to consider new stimulus measures is really hard to say, but we would not expect a bill to be proposed until January or February of next year.

The bottom line is that these measures, particularly those to stimulate small businesses, are critical in order to have any hope at all of getting the job market turned around in 2010. Moreover, various extensions to unemployment insurance programs expire on December 31, 2009, so Congress may have to deal with this issue under separate "fast-tracked" legislation before the Christmas break.