The American Recovery and Reinvestment Act

In light of the economic recession, on the 17^th of February 2009, the Obama administration passed a $787 billion dollar economic stimulus package, the American Recovery and Reinvestment Act, which was designed to respond to the economic stress of the United States and promote its recovery. The Act includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, health care, and infrastructure, including the energy sector. In 2008 an economic recovery package entitled the Economic Stimulus Act was also passed by the Bush administration, but at aproximately $152 billion dollars for 2008 it was much smaller in size and consisted primarly of tax rebate checks to individuals.[16]

Included in the American Recovery and Reinvestment Act is $478 billion dollars in increased spending and $300 billion dollars in federal tax cuts.[17] States or individuals through state programs will receive over $250 billion dollars through the package. While most of the money available to states is through increased spending, there is also a small number of options for states in the area of taxation, for example, the option to turn low income housing credits into grants. Also, although the majority of tax changes are federal, those states coupled with federal income tax laws may experience revenue losses from some of the tax law changes.[18] The National Governor’s Association outlines four major categories of spending in the Act. The first is countercyclical funds, which provide assistance to states for Medicaid ($87 billion) and Education ($64.5 billion), which are by and large the biggest expenses and exert the most fiscal stress on state budgets (for example, in 2006 they represented just over 40% of state spending) (calculated using data inTable 1), as well as an additional $8.8 billion that can be used for any purpose. This brings the total of the countercyclical funds category to just over $135 billion. Second, is the category of appropriated programs, with aid being provided to over 60 existing state programs which run from highway to community service programs, communication, infrastructure and state energy grants. This category of spending totals about $98.7 billion dollars. Third is the area of Safety Net aid, which includes the expansion of food stamps and Medicaid as well as eligibility for unemployment insurance, and represents $40.3 billion dollars in spending. To these three major spending categories, which are all intended to be part of the stimulus portion of the bill designed to limit the rate of decline of GDP and rate of job loss, we must tack on a second label: Foundations for Economic Growth. This portion of the Act targets areas of the economy with potential for providing short term and long term economic growth including Alternative Energy, Energy Efficiency, Green Jobs, Health IT, Broadband development and Research and Development.[19] While the Foundations for Economic Growth portion of the act represents about $56 billion dollars in new spending, this is just a second label for part of the spending allocated in one of the previous three categories,

The Act was designed “to save and create jobs, as well as to cushion the economic downturn and make crucial public investments.”[20] The Excutive Office of the President Council of Economic Advisors estimates that the Act will create 3.5 million jobs by the end of 2010.[21] From a political and economic viewpoint, the Act carries multiple purposes. One of the more obvious goals of the act is to stimulate demand through counter-cyclical measures through the provision of tax cuts as well as increased spending. The Act is also designed to soften the impact of the economic recession on U.S. citizens by extending and expanding their benefits programs including unemployment, foodstamps and medicaid. The Act can also be seen as being a tool in the promotion of the Obama administration’s major policy goals, which include healthcare and green investments. Finally the Act clearly serves as aid to the State Budget offices, which, due to their balanced budget requirements, are particularly struggling in the recession to finance their programs and expenses.

Date: 2016-04-22; view: 557