Posted by Joseph Y. Calhoun, III

Today President Obama is celebrating the passage of the American Recovery and Reinvestment Act as a “major milestone on our road to recovery,” while still emphasizing that we have many miles yet to go. I described the epic bill in an older post, but I thought it might be good to see what the final bill looks like today. Not that I think it is any better - just different - but you never know. There might actually be something good in it.

The size of the plan actually got smaller in conference. That is something I didn’t expect. Usually, bills go to conference where the House and Senate find a way for both houses to get everything they want. The total bill is $789.5 billion. Of course, that is just an estimate since there is no way to know exactly how much some of this stuff will cost. $282 billion is tax-related and the rest is spending of one sort or another. That’s roughly a 35/65 split. The tax portion grew from the House version because of the inclusion of an AMT patch.

Some specifics with my comments in red:

The package includes a provision requiring materials purchased with funds from the bill to be U.S. made. That has spurred criticism from trading partners around the world. But the measure was softened from the original versions, and now includes a requirement that the provision be implemented consistent with U.S. international trade obligations, according to individuals familiar with the bill.

I’m not sure why Congress felt the need to stick a finger in our trading partners eyes. This is just unnecessary.

The bill gives more aid for middle-class families and workers who lose their jobs, including fresh subsidies for health insurance. Businesses get a range of incentives for new investments. Small businesses with revenue under $5 million a year would be able to use current losses to reduce taxes paid over the past five years, a provision that cost about $2 billion. Large manufacturers had been covered in earlier version that cost more than $19 billion, but were rebuffed in final trade-offs on the bill.

The subsidy for COBRA is 60%. Having been in the position of paying for COBRA when I first started this company, I can tell you it is expensive. However, this should have been addressed in seperate legislation. It is not stimulus. The tax loss carryback is a bad idea that rewards failure and keeps marginal businesses functioning. It might save some jobs but it is bad economics.

The final deal included a $5.3 billion tax break that allows corporations to speed up deductions for investments in plants and equipment, and another allowing small businesses to deduct business expenditures of up to $250,000 directly from their tax liabilities.

As I’ve said before, accelerated depreciation is okay, but it would be much better to eliminate depreciation schedules altogether. This isn’t stimulus either. In the past, companies did not increase investment in response to a cut like this.

Certain middle-class households that currently aren’t hit by the Alternative Minimum Tax — designed years ago to make sure the rich didn’t escape taxation — will remain shielded. The bill has $69 billion to ensure that for the next year. But a separate tax break for the middle class and working poor is now less generous than the president wanted.

Again, this should have been addressed in a seperate bill. Actually, they should just repeal the AMT. It isn’t accomplishing the purpose for which it was originally enacted.

Home buyers who hoped for a $15,000 tax credit to buy a new home, as promised by the Senate, will be disappointed. A proposed $35 billion credit to support home sales was jettisoned in favor of a more modest $2 billion to $3 billion provision.

The proposal would eliminate the repayment requirement in an existing tax credit for first-time home buyers, and raise the credit to $8,000 from $7,500. Congressional aides cautioned Wednesday that the credit’s size was still subject to negotiation.

Subsidizing housing is part of the problem and cannot be part of the answer. What are the chances that this ever goes away?

Consumers who had hoped for a big tax break for buying a new car also will be disappointed. An $11.5 billion break proposed by the Senate is now down to just $2 billion, with tighter limits on who qualifies. Among other things, the proposal would allow buyers a federal income-tax deduction on local taxes on new-car purchases.

There’s another provision aimed right at the car makers. Companies can defer taxes for five years on transactions aimed at restructuring balance sheets and repay the taxes over the following five years. That helps GM which is trying to do a debt for equity swap that would have cost them roughly $7 billion in taxes. That assumes of course they can get bondholders to do the swap.

The package includes less direct aid to states than Mr. Obama had proposed, but a last-minute funding increase cleared the way for the deal. A state “stabilization fund” intended to help cash-strapped states avoid budget cuts was boosted to $53.6 billion from $44 billion.

Of those funds, $40.6 billion would go to local school districts to avoid teacher layoffs or to build or renovate schools. A further $5 billion would be for bonus grants to schools and districts that meet educational performance measures. And $8 billion would be set aside to avoid cuts in “high-priority needs,” such as police, fire and prisons. The overall stabilization fund is considerably higher than the Senate’s $39 billion total but far less than the House’s $95 billion.

With an $87 billion federal infusion to help pay for Medicaid, states will get a boost. But with total budget shortfalls of at least $350 billion projected over the next two years, state governments will still have to cut deeply, say economists at the Center for Budget and Policy Priorities.

Rewarding the bad behavior of states is no different than rewarding the bad behavior of industries. The states got a windfall of tax revenue from the housing boom and they wasted it. There is an argument that if they don’t get the money, they will raise taxes and reduce spending and therefore offset the positive impact of the federal stimulus. If you believe more spending is the answer, I guess this should count as stimulus.

Mr. Obama’s “Making Work Pay” tax cut — a payroll-tax holiday for workers — was scaled back. The package set the value of the benefit at $400 for individual workers, down from $500 in the proposal he floated on the campaign trail, and at $800 for couples, down from $1,000. The benefit would phase out for workers making $75,000 a year and for couples earning $140,000.

The package would broaden the reach of the child tax credit, lowering the minimum income required for workers to qualify for the credit to $3,000. Under current law, the minimum income was $8,500 for 2008 and is set to rise to about $12,000 for 2009, congressional aides said.

I think this demonstrates the priority of the political class perfectly. It is not surprising that they decided to cut the only portion of the bill that provides money to individuals. I don’t agree with the structure of the tax credits, but at least it was money the politicians wouldn’t be spending.

The rest of the bill is split between infrastructure spending (and I use that term loosely) and other spending on things that can best be described as a Democratic party wishlist. Okay, there’s probably some Republican wish list items too, but it is overwhelmingly a Democratic priority bill.

I’ll be posting more details as I get through them. There is a lot in the bill and most of it is hard to classify as stimulus, but it will spend a lot. If you believe that is the answer, you should be happy. Needless to say, I’m not.

American Recovery And Reinvestment Act - Full Text