When it was approved in February 2009, the CBO said it would spend $185 billion in 2009. The CBO projected these funds would increase GDP growth by 1.4% - 3.8% by the end of 2009. This does not mean GDP growth will be positive. The economy could remain in recession, defined as negative GDP growth. I fact, the CBO forecast GDP growth to be negative 3% for 2009. The plan would also prevent .9 - 2.3 million job losses. It is difficult to measure jobs which have not been lost.
The main purpose of the package was to prevent the re-emergence of the panic that gripped investors in 2008. It also aimed to restore trust in the finance industry by further limiting bonuses for senior executives for companies that received TARP funds.(Source: CBO, Letter to Senator Grassley, March 2, 2009; Economic Projections)
Here is the detail about the economic stimulus plan's seven components:
Immediate Relief for Families
This will cost $260 billion over 10 years.- Cut taxes by $400 for individuals and $800 for families.
- A payment of $250 to recipients of Social Security, veterans pension and SSI benefits.
- $70 billion to continue the AMT tax shelter.
- Greater access to child tax credit for working poor and expand earned-income tax credit to families with three children.
- A $2,500 college tuition tax credit.
- $8,000 tax credit for first-time homebuyers in 2009.
- Deduction of sales tax on new car purchases.
- Extension of unemployment benefits and suspension of taxes on those benefits through 2009.
Modernize Federal Infrastructure
- $46 billion for transportation and mass transit projects.
- $31 billion to modernize federal buildings.
- $6 billion in water projects.
Increase Alternative Energy Production
- $17 billion in renewable energy tax cuts.
- $5 billion to weatherize homes.
Expand Health Care
- $24 billion to subsidize COBRA benefits for laid off workers.
- $87 billion to help states with Medicaid.
- $10 billion to National Institute for Health
- $17 billion to modernize health information technology systems.
Improve Education
- $54 billion to school districts and states.
- $21 billion for school modernization.
- $17 billion to boost Pell Grants.
- $13 billion for Head Start.
- $12 billlion for special ed programs.
Invest in Science Research and Technology
- $10 billion for science facilities.
- $4 billion to increase broadband infrastructure.
- $4 billion for physics and science research.
Help Small Businesses
- $54 billion to help small businesses through a variety of tax incentives and write-offs.
Obama increased spending from the $190 billion plan he proposed in his campaign, after realizing that dramatic and aggressive action is needed to stem the economic crisis. Some components of his campaign plan, such as enacting a foreclosure moratorium, have already been implemented by Fannie Mae. Others, such as eliminating taxes for seniors making up to $50,000, are still part of Obama's economic agenda elsewhere.
Obama's biggest challenge was to create enough of an economic stimulus to soften the recession, but not big enough to create further doubts about the ballooning Federal Debt, now over $11.5 trillion. In fact, the package included legislation to raise the debt limit to $12 trillion.
How Does the Plan Work?
Obama's tax rebates encourages consumer spending, although many doubt that it is enough. The stimuli for small businesses helps create jobs. The state aid helps keep them from having to either raise property taxes or cut needed services, which also saves jobs. The public works construction retains or adds 3 million jobs. It also lowers transportation costs for consumers. All incentives should be removed once the danger is over to reduce the deficit and avoid future inflation.
