* Japan PM Aso says economy worsening rapidly

* Govt to sell over Y10 trln new bonds to pay for stimulus

* $154 bln stimulus spending plan seen boosting GDP 2 pct pts

* Markets see major new issuance, steepen bond yield curve

By Yuzo Saeki

TOKYO, April 10 (Reuters) - Prime Minister Taro Aso said on Friday Japan's economy was in crisis, as he formally announced government plans to spend $154 billion to help lift the country out of its deepest recession since World War Two.

"Japan's economy is worsening rapidly with exports and production tumbling. Job conditions are also deteriorating sharply," Aso told a media conference.

"Japan's economy can be described as being in a crisis."

Finance minister Kaoru Yosano said the government would issue more than 10 trillion yen ($100 billion) in new bonds to pay for the package, which would raise total issuance this year by at least a third to a record 44 trillion yen.

The government said the 15.4 trillion yen ($154 billion) in new stimulus spending was equivalent to 3 percent of GDP and was expected to push up real economic growth by 2 percent in the financial year to next March. It is the fourth such package in the past year and brings stimulus spending to around 5 percent of GDP as Japan battles a deepening slump with the global financial turmoil shrivelling demand for its cars, technology and other manufactured exports.

A senior government cabinet minister said this week he expected 10-11 trillion yen in additional new bonds to be sold, which would raise issuance by a third to a record 44 trillion yen this year.

Worries about the government's need to issue much more debt and the accompanying rise in long-term rates have caused a sharp steepening for the government bond yield curve.

The spread between the two- and 20-year yields reached 170.5 basis points earlier this week, its widest level in three years, although it has come back to 165 basis points.

The benchmark 10-year yield touched a five-month high of 1.490 percent on Friday but closed lower ahead of the announcement, at 1.450 percent.

Japan's government debt is already the highest among industrialised nations at about 150 percent of gross domestic product, prompting some lawmakers to warn there is a limit to how much stimulus it can afford.

Japan's economy tumbled 3.2 percent in the last quarter of last year and plunging business confidence has raised fears the situation is getting worse.

The world's No.2 economy has been more severely hit by the global recession than other major economies due to its heavy dependence on exports.

But other major economies are not immune, with the United States announcing a $787 billion stimulus package and European Union countries planning fiscal stimulus of 3 to 4 percent of GDP.

The government's stimulus efforts may yet face a rocky ride in a divided parliament, where the opposition controls the upper house and can delay legislation.

Prime Minister Taro Aso said on Thursday that the timing of a general election that must be held by October would depend on how opposition parties cooperate in implementing the stimulus plan.

Previous plans to respond to Japan's dire economic situation have been delayed by the parliamentary deadlock.

Aso has said he might call a snap election if the opposition delays enactment of budget bills needed to fund the stimulus package.

A senior official in the main opposition Democratic Party said on Friday his party had no plan to drag things out unnecessarily.

"It seems that Prime Minister Aso wants to link this issue with the election. We don't think it is necessarily desirable to resist and needlessly take time under these economic conditions," Yukio Hatoyama said in a news conference.

But an economist warned that expectations of an election could prompt lawmakers to try to earmark spending for their constituencies in an attempt to win voters' favour.

"As the lower house must hold an election by this autumn, there is a greater chance that public works projects backed by political interests could be included in the stimulus plan," said Yasuhiro Onakado, chief economist at Daiwa SB Investments. ($1=100.21 Yen) (Additional reporting by Yoko Kubota ( KUB - news - people ); Editing by Michael Watson)

Since President Obama signed the economic-stimulus package into law February 17, I have received many questions about its provisions. And I've noticed that there are a lot of misconceptions about the plan. Here's the lowdown.

Misconception #1: Most people will get their stimulus money as a check this year.

Instead of receiving a check from the government, most single taxpayers will see an adjustment to their tax withholding in their paychecks in 2009 and 2010, giving them about $45 extra per month for the rest of this year (married workers will receive an extra $65). If you're self-employed, you can adjust your quarterly tax payments to benefit from the tax credit. Then you will claim the credit when you file your 2009 tax return next spring, bringing your tax bill in line with your reduced payments.

The stimulus also provides a one-time payment of $250 to recipients of Social Security, Railroad Retirement and Veterans Administration benefits.(People who applied for any of these benefits for the first time after January 31 don't get the money; only those on the rolls in November and December 2008 and January 2009 are eligible.) You'll get the money electronically or by check, depending on how you receive those benefits. Retired government employees who don't receive Social Security will also get a $250 credit when they file their 2009 returns.

Misconception #2: The adjustment to withholding will have to be paid back when you file your tax return next year.

Wrong -- the stimulus is actually a tax credit of 6.2% of taxable wages in 2009 and 2010, to a maximum each year of $400 for single taxpayers and $800 for married couples filing jointly. The credit is refundable, which means that you can still receive the full credit even if it is worth more than your total tax liability.

Paychecks are being adjusted now to get more money into the economy faster. You'll claim the credit when you file your return next year, so your tax bill should adjust in line with the stimulus money (and you might get some extra money at tax time if your withholding wasn't adjusted enough to account for the extra credit during the year, which may happen for some married people in single-earner households).

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But not everyone qualifies for the credit. It begins to phase out for single filers with adjusted gross incomes of $75,000 or higher, or $150,000 for married couples filing jointly, and it disappears entirely for single filers with AGIs of $95,000 or more, or $190,000 for joint filers.

Misconception #3: The first-time home buyer's credit needs to be repaid.

You may not have to repay the credit, depending on when you bought the house.

If you buy a house between January 1, 2009, and December 1, 2009, you could receive a credit for 10% of the home's purchase price, up to $8,000. This credit does not have to be repaid as long as you own the home for at least three years.

If you bought a first home between April 9, 2008, and December 31, 2008, you are eligible for a tax credit of 10% of the home's purchase price, up to $7,500 -- but the credit must be repaid over 15 years, starting two years after you claim the credit. If you sell the home before you finish paying back the credit, the balance is due in full the year of the sale.

The 2008 and 2009 credits begin to phase out if your modified adjusted gross income is more than $75,000 (or $150,000 if you're married filing jointly). The credit disappears entirely after your income reaches $95,000 if you're single, or $170,000 if married filing jointly. You are considered a first-time home buyer if you (and your spouse, if you are married) didn't own a primary residence in the past three years. The credit does not apply to rental property and vacation homes.

Misconception #4: You can't get the 2009 first-time home-buyer tax credit until you file your tax return next year.

Actually, taxpayers who buy a first home in 2009 do not need to wait until they file their 2009 return (by April 15, 2010) to benefit from the credit. To get the money into the economy faster, the federal government is giving you a choice of claiming the first-time home-buyer credit on either your 2008 or your 2009 tax return.

There's actually a way to benefit from the credit even before you buy your first home. If you plan to buy by the November 31 deadline, you can reduce your withholding on your paychecks right away. The increased take-home pay could help you with the down payment. File a new W-4 form with your employer to adjust your withholding. (And remember to re-adjust your withholding again next year.)

If you have already filed your 2008 return, you can use Form 1040X to amend it. If you purchase a first home after the 2008 tax-filing deadline of April 15, 2009, you can still claim the credit on your 2008 tax return either by requesting a six-month extension for filing your return (which doesn't extend the deadline for paying any taxes owed) or by filing an amended return.

Misconception #5: You need to apply through the government to get the COBRA health-care subsidy.

Contact your former employer, not the government, to take advantage of the COBRA subsidy. If you were laid off since September 1, 2008, and are already receiving COBRA coverage, then you'll pay 35% of the COBRA health-insurance premiums, and your former employer will pay the remaining 65%. The government will then reimburse your former employer for the subsidy through a payroll tax credit.

If you were laid off on September 1, 2008, or later but didn't sign up for COBRA coverage, you'll get a second chance to elect COBRA and benefit from the subsidy. You should receive a notice from your former employer soon, or contact your former employer to find out about the steps for signing up.

Misconception #6: You can receive the COBRA subsidy the entire time you're covered by COBRA.

Federal law requires most companies with 20 or more employees to let former employees keep group health-insurance coverage for up to 18 months after they leave their jobs. But the 65% COBRA subsidy lasts for only nine months. After that, the premiums will jump back to the full price - and the average employer health-insurance plan costs $12,680 per year for family coverage, according to the Kaiser Family Foundation.

If you have health issues, COBRA may still be your best bet despite the hefty price tag. But many people can find a better deal by buying their own health insurance. You can get price quotes for individual policies at eHealthInsurance.com, or find a local health-insurance agent at the National Association of Health Underwriters Web site. Check out your options at least one month before your COBRA subsidy expires so you'll have plenty of time to find out how much an individual policy would cost.

The subsidy ends if you find a job and your new employer offers health-care coverage or you become eligible for Medicare. And COBRA does not apply if the company stops offering health coverage to current employees or shuts down entirely.

Misconception #7: The number of weeks you can receive emergency unemployment benefits has been extended.

The stimulus does not provide additional weeks of benefits for people who use their 33 weeks of emergency unemployment-compensation benefits; it just expands the dates that the program will be available.

A federal law passed last year provides an extra 20 weeks of emergency unemployment compensation to workers who exhausted their regular unemployment benefits, plus an additional 13 weeks of extended benefits for residents of states with high unemployment rates (contact your state unemployment-benefits office for details about your state's rules).

The emergency unemployment-compensation program was scheduled to expire on August 27, 2009, and the last day to apply for benefits was originally set to be March 31, 2009. As a result of the stimulus law, unemployed people who exhaust their regular state benefits now have until December 31, 2009, to apply for extended benefits and can receive compensation until May 31, 2010.

I haven't spent this much time thinking about economics since college, when it was my second major. I have dedicated the last 15 years primarily to my first major, computer science, and my first love, entrepreneurship. But that has changed in the last six months, although my primary concern still remains entrepreneurship.

I was invited by Tim Kane and Bob Litan of the Ewing Marion Kauffman Foundation, the world's largest foundation dedicated exclusively to the cause of promoting and fostering entrepreneurship, to a small conference of economics bloggers held in Kansas City recently.

About 30 of us spent a stimulating day--and two dinners--discussing the current crisis, the path forward, policy issues and a variety of other topics. (Read "Reconnecting With Economics.")

A growing concern is the current lack of policy to support entrepreneurship from this administration, especially bootstrapped entrepreneurship. As the government tries to assess what might stimulate entrepreneurship, I don't see many "practitioners" of true entrepreneurship represented on President Obama's advisory council. Who represents the voice of the bootstrapped entrepreneur in the government? Who understands the extreme cash-strapped conditions under which entrepreneurs operate? Without understanding, how can they design an effective system?

Yet, we're constantly wrapped around the axle of venture capital as the primary driver for entrepreneurial growth. President Obama has a few venture capitalists around him, including John Doerr. But Doerr has never been a practicing entrepreneur, especially not a bootstrapped entrepreneur.

In fact, this week, there was some whining from the venture capital industry about a tax increase for carried interest per the Obama budget proposal. The administration proposes raising taxes on these firms' general partners by treating carried interest, the portion of profits they take from successful investments, as ordinary income instead of capital gains. That change would increase the tax rate, starting in 2011, to 39.6% from the current 15% level.

My first reaction when I read this was, "What carry?" Most venture firms have had negative returns in recent years! But on a more serious note, my reaction is that there is some legitimacy to this proposal. The VCs are outrageously overcompensated as it is. (Read "VC-Entrepreneur Compensation Disbalance.")

There is no reason to give them additional tax breaks, unless they truly participate in risk taking, and they're not doing that these days. What we need to incentivize is the very early stage entrepreneurship and investment process, which comes primarily out of the entrepreneurs' own pockets and those of friends and family and angel investors. (Read "Stimulus Package for Entrepreneurs.") To the extent VCs should have any incentive via low capital gains taxes, I would offer that only to those who practice the high-risk art of true early stage venture capital, not en masse. My recommendation is a two-tier capital gains tax structure, which President Obama may consider to achieve some of the same results, but without choking up the growth engine.

An aspiring entrepreneur ought to be allowed to create a tax-free pool of income for use as personal venture capital. Such a pool of capital would go a long way to help kick-start new ventures.

Most entrepreneurs--especially first-time entrepreneurs--don't have access to such high net-worth people. They raise money from friends and family. Thus, the government should be very careful how a $400,000-a-year uncle is treated from a tax policy point of view. The choice may well be between $250,000 being invested in a start-up, versus that $250,000 going into the government's pocket as income tax. Furthermore, angel investors should also be allowed to create pools of tax-free capital for investing in start-ups.

Variations on this thinking have been implemented in certain states like Arizona, Oklahoma, Indiana and a few others. In fact, InfusionSoft Chief Executive Clate Mask wrote on my blog: "A couple years ago, our business was the beneficiary of a state program in Arizona that gives angel investors a state tax credit on their investment in a 'qualifying small business.' For our company, this credit was just the nudge several angel investors needed to go forward on an investment in our company. We raised about $400k from those angels. Today, we have about 140 employees, our business is excelling and our investors got their state tax credit."

Arizona offers a 30% tax credit to angel investors, but they have to be residents of the state to take advantage of the program. Mask believes a federal version of such an incentive structure would be much more effective so that entrepreneurs may be able to attract investors nationwide.

These are complex issues that require careful consideration from the Obama administration in order to design a properly functioning growth engine. For that, the president needs to first decide that entrepreneurship is a major issue that he cares about, and not just something he gives lip-service to. Then, he needs to recruit an advisory council made up of bootstrapped entrepreneurs, not venture capitalists or super high net worth investors. This will be the key to spawning a million small businesses that employ 10 million people--or more.

And therein lies the engine of growth now silenced by the $20 billion flushed down into General Motors' (nyse: GM - news - people ) bottomless abyss.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her first book, Entrepreneur Journeys (Volume One), is available from Amazon.com.

Obama's Stimulus

Joshua Zumbrun, 02.09.09, 09:56 PM EST

The recession, deficit and bailout were inherited--the stimulus is all his.

Deal announced on emergency stimulus plan

By DAVID ESPO , 02.07.09, 01:52 AM EST

With job losses soaring nationwide, Senate Democrats reached agreement with a small group of Republicans Friday night on an economic stimulus measure at the heart of President Barack Obama's plan for combatting the worst recession in decades.

"The American people want us to work together. They don't want to see us dividing along partisan lines on the most serious crisis confronting our country," said Sen. Susan Collins of Maine, one of three Republican moderates who broke ranks and pledged their votes for the bill.

Democratic leaders expressed confidence that the concessions they had made to Republicans and moderate Democrats to trim the measure had cleared the way for its passage. No final vote was expected before Monday.

Officials put the cost of the bill at $827 billion, including Obama's signature tax cut of up to $1,000 for working couples, even if they earn too little to pay income taxes. Also included are breaks for homebuyers and people buying new cars. Much of the new spending would be for victims of the recession, in the form of unemployment compensation, health care and food stamps.

Republican critics complained that whatever the cost, billions were ticketed for programs that would not create jobs.

In a key reduction from the bill that reached the Senate floor earlier in the week, $40 billion would be cut from a "fiscal stabilization fund" for state governments' education costs, though $14 billion to boost the maximum for college Pell Grants by $400 to $5,250 would be preserved, as would aid to local school districts for the No Child Left Behind law and special education.

A plan to help the unemployed purchase health insurance would be reduced to a 50 percent subsidy instead of two-thirds.

President-elect Barack Obama urged Congress on Thursday to pass a major piece of legislation, authorizing unprecedented spending and tax cuts, in the next few weeks.

Obama called for spending on clean energy and energy efficiency programs, infrastructure, updating the nation's electrical grid digitizing health records, and increasing Broadband access. He also called for tax cuts and a big effort to halt foreclosures. His speech mentioned no specific spending level, but plans are hovering around $700 billion to $800 billion.

"I don't believe it's too late to change course. But it will be if we don't take dramatic action as soon as possible," Obama said. "If nothing is done, this recession could linger for years."

Inadvertently, the speech also highlighted something else: the difficulty of authorizing so much spending in a matter of weeks in a wise and prudent way.

The closest the speech came to details was Obama's statement that the stimulus would include a $1,000 tax cut for 95% of families, echoing his campaign pledge.

But for other tax cuts and spending no specifics were provided. The spending package will provide for rebuilding crumbling bridges, roads and schools by eliminating a backlog of infrastructure projects, Obama said. He also pledged there will be no "earmarks and pet projects."

So, who then determines what's an infrastructure project? The infamous "Bridge to Nowhere" was "infrastructure." Plans were drawn up for it. Workers would have been employed to build it. What's the difference between pork, a boondoggle and useful infrastructure?

LONDON, Dec 21 (Reuters) - International Monetary Fund chief Dominique Strauss-Kahn said insufficient fiscal stimulus by governments to tackle the global slowdown may make a bad 2009 even worse, according to an interview released on Sunday.

Strauss-Kahn told BBC radio that the IMF may need to cut its next economic growth forecasts, due in January, referring to "2009 as really being a bad year".

"I'm specially concerned by the fact that our forecast, already very dark ... will be even darker if not enough fiscal stimulus is implemented," he said in an interview.

The IMF has called for higher government spending and temporary tax cuts worth $120 trillion, or 2 percent of global annual economic output, to fill the gap caused by slumping private demand following the credit crunch.

Britain has announced fiscal stimulus worth around 1 percent of output, and despite "disturbing" level of public debt, Strauss-Kahn said more public borrowing would be the lesser of two evils.

"The question of having social unrest has been highlighted by journalists and I can understand that, but it's only part of the problem," he said. "The problem is that the whole society is going to suffer." (Reporting by David Milliken; Editing by Tomasz Janowski)

President-elect  Barack Obama calls it "the largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s." New York Mayor Michael R. Bloomberg compares it to the New Deal -- when workers built hundreds of bridges, dams and parkways -- while saying it could help close the gap with China, where he recently traveled on a Shanghai train at 267 mph.

Most of the infrastructure spending being proposed for the massive stimulus package that Obama and congressional Democrats are readying, however, is not exactly the stuff of history, but destined for routine projects that have been on the to-do lists of state highway departments for years. Oklahoma wants to repave stretches of Interstates 35 and 40 and build "cable barriers" to keep wayward cars from crossing medians. New Jersey wants to repaint 88 bridges and restore Route 35 from Toms River to Mantoloking. Scottsdale, Ariz., wants to widen 1.5 miles of Scottsdale Road.

On the campaign trail, Obama said he would "rebuild America" with an "infrastructure bank" run by a new board that would award $60 billion over a decade to projects such as high-speed rail to take the country in a more energy-efficient direction. But the crumbling economy, while giving impetus to big spending plans, has also put a new emphasis on projects that can be started immediately -- "use it or lose it," Obama said last week -- and created a clear tension between the need to create jobs fast and the desire for a lasting legacy.

"It doesn't have the power to stir men's souls," said David Goldberg of Smart Growth America. "Repair and maintenance are good. We need to make sure we're building bridges that stand, not bridges to nowhere. But to gild the lily . . . where we're resurfacing pieces of road that aren't that critical, just to be able to say we spent the money, is not what we're after."

Minneapolis Mayor R.T. Rybak is proud that his city was able to quickly rebuild the Interstate 35 bridge that collapsed into the Mississippi River in 2007 while making sure to include capacity for a future transit line on it. But he worries that many of the road and bridge upgrades around the country will not be done in a similarly farsighted way, given the time pressures.

"The quickest things we can do may not be the ones that have the most significant long-term impact on the green economy," he said. "Unless we push a transit investment, this will end up being a stimulus package that rebalances our transportation strategy toward roads and away from [what] we need to get off our addiction to oil."

Mayors say there would be a better chance for a long-term impact if the money were focused on metropolitan areas where investments could make the most difference in reducing congestion and lessening dependence on cars. They doubt that will happen if infrastructure funding goes directly to state capitals.

In Seattle, Mayor Greg Nickels said that the list of projects submitted by Washington state included only one in Seattle, for a ferry dock, while the city has ambitious hopes for removing a hulking highway ramp in a revitalized neighborhood and accelerating a light-rail expansion.

"Metro areas really are the engines of the economy, and to the extent that this can go directly to the metro areas rather than a cumbersome state process, it will have more effect," Nickels said. "States can do a nice job in rural counties, but in metro areas it's not always a good relationship or very nimble."

As it stands, Congress, wanting to keep things simple, plans to disburse the money under existing formulas -- funding for roads and bridges will go to state governments, while money for public transit will go to the local agencies that receive transit funding.

State officials are playing down concerns about their proposed projects' value. New Jersey Gov. Jon S. Corzine said repairing a swath of roads and bridges is ambitious in its own right. "We could spend money on further provision of rail to Port Elizabeth and Port Newark, but if the highways weren't paved, we actually wouldn't have the ability to have the trains get to the spot to take the goods to the local distribution outlet," he said. "Those deferred maintenance investments are fundamental to maintaining a capital infrastructure."

Oklahoma transportation director Gary Ridley justifies his state's wish list in similar terms. Its highway pavements "are probably 40 years old, and some of them have been replaced, but a lot of them haven't," he said. "It's not like we're grabbing these out of the air."

Wall Street had a strong start to the week, after President-elect Barack Obama outlined his economic stimulus plans and indications that Congress will help Detroit's automakers stave off bankruptcy.

Over the weekend, Obama outlined plans to invest in infrastructure, energy and construction projects to spur the U.S. economy out of its year-long recession and create jobs. The proposals came after the Labor Department said the economy shed 533,000 jobs in November.

The major averages started the day higher, as the Dow Jones industrial average gained 269 points, or 3.1%, to 8,904, shortly into the session. The Standard & Poor's 500 was up 31 points, or 3.5%, to 907, while the Nasdaq added 43 points, or 2.9%, to 1,553.

According to TradeTheNews.com, Democrats in Congress and the Bush administration have agreed to the framework of a deal that provide loans to General Motors (nyse: GM - news - people ), Ford Motor (nyse: F - news - people ) and Chrysler, but not nearly the $34.0 billion the companies requested. Rather, the package is believed to be worth around $15.0 billion, and would help GM and Chrysler hold off bankruptcy until at least March, but may require management change. Shares of GM climbed 62 cents, or 15.2%, to $4.70 early Monday, while Ford gained 31 cents, or 11.4%, to $3.03. (See "Promises Of Rescue Come With Demands For Change.")

Still, the news out of corporate America was not all good over the weekend and Monday morning. More job cuts are on the way, from companies like 3M (nyse: MMM - news - people ) and Dow Chemical (nyse: DOW - news - people ).

3M announced over the weekend that it would cut 1,800 jobs in the fourth quarter, and on Monday morning the diversified company cut its 2008 earnings guidance to reflect the global economic slowdown. Shares of the Dow component were up 22 cents, or 0.4%, to $60.07, during the broad rally early Monday.

Dow Chemical said it will lay off 5,000 workers and close 20 plants in "high-cost" locations as part of its accelerated restructuring plans. The news sent Dow shares up $1.03, or 5.4%, to $20.03.

The outlook is also uncertain for MetLife, after the insurance company trimmed its fourth-quarter earnings guidance and said it could report a loss for the period. MetLife (nyse: MET - news - people ) still managed a $1.19, or 3.9%, gain, to $31.95.

Barack Obama's plan to pull the country out of recession has a strong green hue. Conventional wisdom says Washington won't have the stomach or the dollars to tackle long-term issues like climate change or dependence on foreign oil when the economy is in the tank and oil prices have plunged. Wrong conclusion, Obama says. These problems, "left unaddressed, will continue to weaken the economy and threaten national security," he said on Nov. 18 in a video message to a climate summit meeting in California.

His fix? Obama plans to set ambitious targets for reducing emissions that cause global warming—and to invest $15 billion or more per year in energy efficiency, renewables like wind and solar, biofuels, nuclear power, and "clean" coal. Beyond the environmental benefits, says the President-elect, the investment "will also help us transform our industries and steer our economy out of this economic crisis by generating 5 million new green jobs that pay well and can't be outsourced."

Whether or not a "green" stimulus will create millions of American jobs is hotly debated by economists. On the one hand, the seeds of the transformation have already been planted thanks to market forces, such as overall higher energy prices, and government policies like tax credits for renewable energy. But there are also major questions. Many executives and experts say the most effective policy to push America toward a clean, efficient energy future is putting a price on emissions of greenhouse gases like carbon dioxide, thus raising the price of energy. That's a tough sell now to Americans struggling to pay their bills. There's also a danger that the government could steer investments to the wrong technologies. Remember synfuels, President Jimmy Carter's experiment to reduce dependence on foreign oil? Most important, a green stimulus plan from Uncle Sam may end up sending billions of dollars to foreign companies instead of to Main Street, since the U.S. lags in such crucial industries as solar panels and wind turbines. Will green technologies become today's VCRs and flat-panel TVs, invented in the U.S. and commercialized elsewhere?

But the fear of enriching overseas companies simply makes a green stimulus more necessary and urgent, proponents argue. Without a plan like Obama's, which would expand U.S. markets for new technologies, American companies may fall even further behind. Michael R. Splinter, CEO of Applied Materials (AMAT) in Santa Clara, Calif., is a believer in the need for government support. Splinter has seen his business of supplying equipment for factories to make solar panels soar beyond his wildest projections. But 97% of the company's equipment goes to foreign manufacturers, who then sell panels in the U.S. It seems like the U.S. has "given up on manufacturing," Splinter laments. "Right now we are on a path to being a second-tier player in clean energy technology."

A plan like Obama's could turbocharge American industries, Splinter and other executives say. Why have European companies become world leaders in wind and solar power? Because a number of governments guarantee that anyone who supplies renewable power to the electric grid will get a premium price for that power. That cost is then passed along to customers.

POLITICAL LAND MINES

Similar incentives could work magic in the U.S., says Lester Brown, president of the Earth Policy Institute. America already has a vibrant green-energy sector, so the transformation could be rapid. There are upward of 3 million Americans employed in green jobs, ranging from renewable-power startups to businesses with products that reduce waste and pollution or boost energy efficiency.

And even when goods come from foreign companies, some of the jobs will be in the U.S. One growing trend is for European and Asian manufacturers to build factories in America so they can be closer to what promises to be the world's largest market.