Economic Stimulus Package

(Article Source: about.com)

The US $787 billion economic stimulus package has been passed by Congress. According to the CBO, it will spend $185 billion in 2009, increasing GDP growth by 1.4%-3.8%, and increase jobs by 1-2 million. This will shorten the recession, which is defined as negative GDP growth. It will also create hope, which will stem the panic that gripped investors in 2008. In response to the mistrust that many people feel towards the finance industry, it further limits bonuses for senior executives for companies that receive TARP funds.

The plan has seven components:

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.

• $46 billion for transportation and mass transit projects.
• $31 billion to modernize federal buildings.
• $6 billion in water projects.

• $17 billion in renewable energy tax cuts.
• $5 billion to weatherize homes.

• $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.

• $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.

• $10 billion for science facilities.
• $4 billion to increase broadband infrastructure.
• $4 billion for physics and science research.

• $54 billion to help small businesses through a variety of tax incentives and write-offs.

(Source: AP, Stimulus Package on Track for Final Votes, February 12, 2009; Bloomberg, Lawmakers Drop Broadband Tax Credit, February 13, 2009; WSJ, How It Adds Up, February 15, 2009)

Spending has been increased from the $190 billion plan that was proposed earlier, after realizing that dramatic and aggressive action is needed to stem the economic crisis. Some components of that 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 the economic agenda elsewhere.

The biggest challenge is 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 $10 trillion. In fact, the package includes legislation to raise the debt limit to $12 trillion.

Tax rebates will encourage consumer spending, although many doubt that it is enough. The stimuli for businesses will help revitalize the economy, especially helping small businesses. The state aid will help keep them from having to either raise property taxes or cut needed services. The public works construction will retain or add 3 million jobs, and lower transportation costs. All incentives should be removed once the danger is over to reduce the deficit and avoid future inflation.

(Article Source: about.com)