Is The Stimulus Plan Working?
Back in May, President Bush signed into law a $350 billion tax cut, his third
so far, in an effort to stimulate the economy. There has been much debate
about the efficacy of some of the bill’s provisions, but two key business
sentiments surveys released this week suggest that the plan may be having
a positive effect on business spending and hiring plans.
The stimulus plan is designed in part to improve small business cash flows
and promote spending by addressing two issues. First, until this bill was
passed, most small businesses were being taxed at the owner’s personal tax
rate, which in many instances was as high as 38.6%–almost 4% higher than the
highest corporate tax rate. This discrepancy will now be eliminated and will
therefore leave these small, but economically significant, businesses with
more cash. Second, the tax-cut also increases the amount of equipment
write-offs for businesses to $100,000 from $25,000, further encouraging
businesses to spend.
This week’s surveys
The CIO magazine tech poll posted its largest increase in 15 months. Most of
the gains in the index came from the spending component, which indicates that
businesses plan on increasing their investment in technology by 5.6% from
3.3% in May, which should further boost sectors like the semiconductors
Moreover, the percentage of polled Chief Investment Officers
expecting a decrease in their tech spending budgets fell from 17.9% to
15.8%.
The most recent survey of small business optimism, conducted by the National
Federation of Independent businesses, rose for a fourth straight month.
Notably, the components that measure spending and hiring activity suggest
that not only do businesses plan on increasing their spending budgets but
they also plan on employing more workers…
Let’s see if they put their money where their mouth is–I’m betting they
will.
Happy Fourth of July.