What the Stimulus Could Mean for You (Morningstar)

Christine: Hi, I'm Christine Bens for Morning Star. With congress considering an $825 billion stimulus package, we thought it might make sense to discuss what the stimulus package might mean for consumers, investors, and tax payers. Here today with me is Bob Johnson; he is the associate director of Economic analysis for Morning Star. Bob thanks for being here. Bob: Its okay. Christine: Lets start with the obvious question, the stimulus package is designed to get job growth up and running, can you talk about the provisions within the package that are designed to light a fire underneath the job growth. Bob: Sure, the entire goal of the package is to create about 4 million new jobs so that’s the overwhelming thing that we’ve got going here and obviously one of the key components of that is, the new infrastructure package. And they want to spend money on key goals and employ more people and this goes across a wide variety of projects. We’ve mentioned today, 825 billion stimulus package, about 365 billion of that is going to be spent on infrastructure. Some of its links like you’d normally think of, road building and so forth; but there are some other opportunities out there as well. Christine: So, what if you don’t work in a construction industry or bricks and mortar type industry, are there any implications for job seekers and other industries? Bob: Absolutely, I mean that’s what kind of unique about the stimulus is that it has some other components so its just not the person, the home builders that now t move to road building but, now this time we have been spending for internet and communications infrastructure built into this plan. We even got some education things built into this plan and we’ve also got some energy alternatives in this plan. There are even supervisions for wind and solar power in this. So, again, it’s not just all construction people that we are talking about here; it has some broad impacts across the whole economy. Christine: So, as the stimulus package has been under discussion there has been a lot of push-pull between spending versus providing some breaks to tax payers, can you talk about what the implications are for tax payers in the current package? Bob: Sure, in that part of the package, about $275 billion is related to tax release, some of it to business, and some of it to consumer. On the consumers side, we’re talking about $500 per person type of benefit that’s out there, no other its exactly a tax holiday or rebate check, it is still a little shaky but there will be direct tax money back to people and again, unlike the last one will be constrained by your income levels. So that’s the biggest part of the consumer part but there’s also a provision in home buying that there is a $7500 credit that was in the last program but now you may not have to repay that $7500. And there is also a $2500 tuition credit that is new in this package. So there are a number of passive things on the tax fund for individuals. Christine: One thing that caught my eye and I think it’s a topic near and dear to Morning Star readers and viewers, alternative minimum tax appears to be getting perhaps some more substantial fix than it has gotten in the years past. Can you talk about how the package right now addresses AMT. Bob: Yes, the alternative minimum tax, it looks like it could be as much as a $69 billion so that the descent size piece of the pie to get that fixed. Now, weather that turns out to be a multi-year restructuring or exactly what happens is, it is still be wouldn’t be the near end. One of those things we would be closely monitoring but the aside of the package, it tells me it’s significant and its more than a 1 year patch. Christine: Okay, well that’s good to know. Now, how about any other implications for households, I understand there were some additional things in the package to address people which are unemployed for example? Bob: Yes, there’s going to be some extension of the time you can collect unemployment which usually happens, we do that many times when we had the recession and we’re going to do that again this time. There’s something that’s very interesting to me, I know as people are unemployed, one of the things that they’re most worried about is their health insurance and of course there’s always been Cobra which is a program where you can extend your health insurance to work once you’ve left for 18 months. Well now, they are going to say lets make that 24 months and by the way let’s subsidize that payment because a lot of people skip Cobra. A majority of people skip Cobra because it’s a $1000-$1500 a month. For somebody when they’re unemployed that just doesn’t seem like its something they want to do and now they’re talking about subsidizing as much as 65% of that Cobra payments. So, I think that’s a very interesting new attempt by the Obama administration. Christine: Well, thank you Bob. That’s a terrific overview, it sounds like the package has a lot of implications for consumers, investors, tax payers, so it’ll be interesting to see how it unfolds. Bob: Yes, it will and there are a few things that they still can work on over time. I mean, I think it still looks like we’ve got the dividend and capital gains tax increase, that’s scheduled to come in 2010, it is still expiring. Chrisitne: Right. Bob: So that’s one thing I would have like to see in the package that wasn’t there and clearly I'm very attracted to the tax part of this program because it gets the money in peoples hands quickly. The infrastructure stuff is neat but it’s a economic time, let’s all put it, it’s kind of like mailing a letter through the post office to the fire department and say ‘my house is on fire’, it could be just a little too late. Christine: Thank you Bob. Bob: Thank you. Christine: On tax to appreciate it. I'm Christine Bensley for Morning Star. Thanks for joining us.