Capitol Comments

What The President's Budget Plan And Stimulus Could Mean To You

By Jessica Franken, INDA Director of Government Affairs | September 2, 2009

both opportunities and challenges await the nonwovens industry

While most of us are reheating leftovers, clipping coupons and generally tightening our belts, Washington has apparently adopted the adage "it takes money to make money." First there was the $700 billion financial industry bailout, then the $787 billion stimulus package and then the $410 billion fiscal year 2009 omnibus spending measure. More recently, President Obama released a record $3.6 trillion 2010 budget blueprint.

Washington officials say the especially grave nature of our recession—stocks have tumbled to record lows, unemployment is hovering around 8% and threatens to explode to near 11%—requires these bold spending measures.

For the purpose of this forum, let's leave the debate to the countless talking heads dominating the cable news airwaves. But with all the opining and Monday morning quarterbacking, it can be difficult to separate fact from fiction. This article will attempt to do just that by describing some of the key opportunities (and potential challenges) for the nonwoven fabrics industry in the recently passed economic stimulus plan and the President's 2010 budget proposal.

Economic Stimulus

As the name suggests, the American Recovery and Reinvestment Act of 2009 (Public Law 111-5) or 'stimulus plan' is a massive package of tax cuts and federal spending on infrastructure and other projects designed to jump-start the nation's sagging economy and create jobs.

Some of the more broadly touted provisions include the "Making Work Pay" $400 tax credit for individuals and $800 credit for couples, a one-year extension of relief from the dreaded Alternative Minimum Tax (AMT) and tax credits for first-time home buyers as well as new vehicle purchases.

A number of other measures are designed to benefit U.S. businesses. They include an extension of the "carryback" period for net operating losses (NOLs) from two years to five for businesses with gross receipts of $15 million or less. It also extends for 2009 "bonus depreciation." That allows firms to immediately write off 50% of depreciable property. A separate provision replaces depreciation by allowing businesses up to $800,000 in annual qualifying equipment purchases to deduct up to $250,000 investments in any tangible business purchases.

The stimulus bill also rewards firms for various "green" activities. It provides a 30% investment tax credit for manufacturers of advanced energy property and an extension on a production tax credit for wind energy facilities through 2012 as well as other renewable energy facilities through 2013.

Of specific interest to our industry, the stimulus devotes significant money to measures that promote energy efficiency, which could spur demand for certain nonwoven products. For instance, the law increases tax credits for home energy efficiency improvements, which would include purchases of items like new furnaces and insulation. While purchasers were previously able to deduct 10% of the cost of such improvements up to $500, they will now be able to deduct 30% up to $1500 through 2010. It also devotes billions to making similar improvements in federal buildings and funding the government's Weatherization Assistance Program, which helps low-income families install cost-effective energy efficiency technologies (again, like insulation).

Anyone who followed the development of the stimulus has heard the term "shovel ready." Indeed, the law directs almost $100 billion toward jobs creating infrastructure projects aimed at constructing and improving bridges, dams, highways, public housing, government buildings, hospitals and more. This could definitely be a boon for manufacturers of nonwoven building/construction materials and geotextiles.

2010 Budget Blueprint

On February 26, on the heels of the stimulus, President Obama sent Congress his 2010 budget blueprint, outlining his administration's spending priorities for the coming year. That plan, which the White House will flesh out in April, projects some $3.6 trillion in annual appropriations and mandatory spending for things like Social Security and Medicare and includes sweeping policy changes to healthcare reform, education and energy policy. It also envisions an eye-popping $1.2 trillion deficit, a figure President Obama says he will cut in half by 2013.

In addition to increases for a number of domestic agencies, the plan expands upon many of the initiatives in the stimulus including making permanent the AMT fix and the 'Making Work Pay' $400 and $800 tax credits. It also extends Bush-era tax cuts for middle-income workers (those up to the 28% tax bracket) set to expire at the end of 2010.

The proposed budget includes tax benefits for U.S. businesses, including an expansion of the five-year NOL carryback to all businesses, as opposed to just those earning $15 billion or less.It also makes permanent the research and development credit and extends a number of routinely expiring provisions like bonus depreciation.

To pay for all of this, Obama would allow the Bush-era tax cuts for the wealthiest to expire, reinstating 36% and 39.6% rates for individual taxpayers earning over $200,000 and couples earning $250,000. The plan also looks to reduce itemized deductions for this same group, including a controversial limit on all deductions including home mortgage and charitable donations. Furthermore, it would increase capital gains and dividends taxes from 15% to 20%.

A number of other planned revenue raisers in the budget plan have stoked anxiety in the business community. The budget proposes to slash billions in tax breaks for oil and gas industries and looks to draw some $210 billion over the next decade by limiting the ability of U.S.-based multinational companies to shield overseas profits from taxation.

A proposed cap-and-trade policy—which would place strict limits on carbon emissions and auction the rights to emit such gases—has also garnered a lot of fury. President Obama says the plan would generate some $650 billion over 10 years while simultaneously pushing companies to invest in more efficient emission control technologies. Business groups, however, like the U.S. Chamber of Commerce and the National Association of Manufacturers, say cap-and-trade would impose a devastating new cost on U.S. firms when they are struggling to stay afloat, an expense that would eventually be passed on to everybody. Even some members of the President's own party have expressed their concerns. In particular, Democratic lawmakers from "Rust Belt" states like West Virginia, Michigan and Ohio say it would place disproportionate share of the financial burden on their states' economies.

Looking Ahead

Public officials in all jurisdictions are working furiously to put their share of the stimulus to work, although recent reports suggest there have been some holdups as they try to figure out just how to appropriately disburse the money. Meanwhile, the Obama Administration has kept its word to make stimulus implementation a transparent process, launching a website——to allow the public to see where their money is going. Most of the states are following suit.

The White House is already girding for a fight on Capitol Hill over its ambitious budget proposal, with Republican lawmakers and even some moderate Democrats decrying the plan's significant deficits, tax increases and bolder proposals like cap-and-trade. Con­sidering the uproar these proposals have caused so far, it appears the turmoil is just beginning. Be sure to stay tuned to Capitol Comments in the coming months to see how these battles shake out.
Jessica Franken's column appears monthly in Nonwovens Industry.

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