The Stimulus Package Needs to be Performance Enhanced

The President's Economic Stimulus Package needs steroids, or to be politically correct-
needs to be performance enhanced in order to meet the needs of a faltering US economy.

President Bush's stimulus package which he laid out three weeks ago, then argued 
further this week during his 'State of the Nation' speech, provided little if any concrete
evidence for reversing the current downhill trend specifically in the face of a weakening 
American consumer. 

While the House already passed their version of a stimulus package, the Senate is still
debating the issue.  The Senate believes they can do a better job.  In part the
rationale behind this philosophy is that the President's direction, in addition to the
House of Representative's version lacks incentives for business investment, a key
issue that the Senate believes is missing in the stimulus package.

The stimulus package is focused at the consumer and getting the consumer to spend
money to resuscitate the economy. The reason behind this action is that two-thirds of
our nation's economy is based upon consumerism and it is the consumer that the President's
stimulus package is aimed. The reduction in tax liability by providing a larger tax return for
taxpayers this year is based on the philosophy that the taxpayer will spend this extra cash.  

Unfortunately, the foundation of this stimulus package has already failed in two areas.  First,
those behind the President's stimulus package have failed to understand the severity of the
downturn and to take into account human nature.  Most middle income Americans will use the
money to pay down bills and not use the money to spend on more material goods. This will not
help stimulate the economy.  And if you just lost your job, specifically if involved in real estate,
housing construction and in the financial markets your first inclination is not to go out and buy
something but to hang on to it to pay for essentials and outstanding debt.

The second area that the administration has failed to comprehend is the need to create a
business incentive package.  The economy needs a shot of a performance enhanced strategy.

The Senate understands this, hence their continued debate to ascertain what needs to be
done to stimulate the economy.

A key element that they are examining is the addition of $1 billion into the established New Market
Tax Credit program.  This program created in 1999 has been responsible for significant investment
into targeted low income, high unemployment areas that have not seen development and job creation. 

For California, the return has been key to providing smart growth development along with improving 
employment opportunities. Community development entities in California in less than 6 years have
been the recipients of nearly $1 billion that with leverage has yielded nearly $4 billion in developments 
for affordable housing and jobs.

It is hoped that the Senate will stick to its philosophy that business incentives are tantamount for a
stimulus package and win converts including the President and House of Representative.  For without
a direct incentive to business to create jobs (in return for creating jobs) there is no guarantee
that the current configuration of the stimulus package has the capacity to spur the economy given the
dynamics of human nature.

For further information about New Market Tax Credits, contact Doug Bystry, CEO of the Clearinghouse CDFI at 949) 859-3600; www.treasurer.ca.gov/cdiac/tools/2004/7-23/DB.pdf    


Tim Johnson
www.CaliforniaBusinessMinute.com