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What the stimulus means for you
Financial focus
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President Barack Obama recently signed one of the largest pieces of legislation in U.S. history, a $787 billion stimulus bill that combines massive tax breaks and government spending designed to reinvigorate the U.S. economy.
The package contains roughly:
• $300 billion in tax breaks for individuals and businesses.
• More than $250 billion in direct aid to distressed states and individuals.
• Almost $200 billion to modernize and improve the nation’s infrastructure.
Obama said the package will save or create about 3.5 million jobs.
The measure is just one part of Obama’s three-pronged strategy to revive the U.S. economy. His administration outlined changes to a $700 billion financial  rescue plan passed under President George Bush that was designed to stabilize shaky banks and restart lending to businesses and consumers. He’s also announced a package to stem record home foreclosures and arrest the rapid erosion in housing values.

Payroll tax cut

Included in the stimulus plan is a payroll tax cut of $400 per individual or $800 per couple, totaling $116 billion. Retirees, disabled veterans and others who don’t pay payroll taxes will receive $250 each. The bill also includes a one-year fix to the alternative minimum tax costing $70 billion, which will prevent some taxpayers from having to pay extra income taxes this year.
There are $10 billion in breaks for businesses, including faster write-offs for equipment purchased in 2009 and incentives for companies that produce and invest in renewable energy resources.
The stimulus plan provides a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband Internet access, Pell college tuition grants, high-speed rail projects and scores of other programs.

Debt limit raised

To fund the plan, the bill raises the nation’s debt limit to about $12 trillion. The cost of the legislation will be spread over 10 years, increasing the budget deficit by $185 billion in fiscal 2009, which ends Sept. 30, according to estimates by the Congressional Budget Office. The biggest impact, about $400 billion, will come in fiscal 2010. It is estimated that 75 percent of the stimulus will occur in its first 18 months.

Executive pay

Another unprecedented aspect of the bill is new restrictions on Wall Street pay. Going well beyond the $500,000 cap announced by Obama last month, the bill restricts bonuses for senior executives and the next 20 highest compensated employees at companies that receive or have received more than $500 million from the Treasury Department’s Troubled Asset Relief Program.
The Obama administration expressed reservations about the pay limits on concerns they will prevent some banks from participating in government stabilization programs or make others rush to exit them, potentially hampering efforts to unfreeze credit markets. So far, TARP has injected $195.6 billion into more than 330 U.S. financial institutions.

Will it work?

The stimulus bill should have a positive impact on the economy in the next 18 months. Most economists seem to agree that GDP could be about 2 percent  higher this year and
next as a result of the plan.
For a sustained economic recovery, we need to see an effective strategy for dealing with banks and an effective “exit strategy” for reducing the massive increase in government spending implied by the stimulus plan longer term.

Cardella is a financial advisor at Edward Jones in Hinesville.
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