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Two simple steps

Has the American Recovery and Reinvestment Act helped the U.S. economy regain its footing from the most severe downturn in more than a half-century?

Though most economists believe the recession has ended, many Americans have their doubts about that and about the role the massive federal stimulus plan might be playing in the turnaround.

It could be years before any definitive judgment can be made about the Recovery Act as a whole. But that’s not to say some of its provisions haven’t been quite effective.

Here are two that belong in that category—and that Congress should extend promptly.

The first provision allotted $375 million to raise the guarantee on the Small Business Administration’s 7(a) business loans to 90 percent from 75 percent and to reduce or eliminate fees on 7(a) and 504 loans.

How well did this work? The money ran out in early November, months ahead of the scheduled 2010 expiration date for the higher guarantee.

In his speech last week on job-creation initiatives, President Barack Obama called on Congress to extend both the higher guarantee and the fee reductions through the end of next year. Earlier, he had asked lawmakers for a shorter extension—a request they have not acted on.

In the speech, Mr. Obama also asked Congress to pass a one-year extension of a Recovery Act provision that allows small businesses to immediately expense up to $250,000 in capital investments. This Section 179 expensing provision was first enacted in the 2008 stimulus bill and extended through this year under the Recovery Act; without it, the limit would have been roughly half that amount.

Studies have shown that first-year expensing produces a sizable bang for the buck—roughly a 9-to-1 return on every tax-cut dollar, according to research by Ernest Christian and Gary Robbins, former Treasury Department officials.

They also noted recently that expensing is particularly important now because over the past two years the drop in investment for non-residential capital goods has far outstripped the decline in consumption.

Boosting SBA-guaranteed lending and Section 179 expensing alone will not fuel a strong and lasting recovery. But they clearly provide a boost to the small-business sector at the heart of the economy.

12/18/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

 

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