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Stimulus package From Wikipedia, the free encyclopedia
The American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111–5 (text) (PDF)), nicknamed the Recovery Act, was a stimulus package enacted by the 111th U.S. Congress and signed into law by President Barack Obama in February 2009. Developed in response to the Great Recession, the primary objective of this federal statute was to save existing jobs and create new ones as soon as possible. Other objectives were to provide temporary relief programs for those most affected by the recession and invest in infrastructure, education, health, and renewable energy.
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| Long title | An Act making supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, State, and local fiscal stabilization, for the fiscal year ending September 30, 2009, and for other purposes. |
|---|---|
| Acronyms (colloquial) | ARRA |
| Nicknames | Recovery Act |
| Enacted by | the 111th United States Congress |
| Effective | February 17, 2009 |
| Citations | |
| Public law | 111-5 |
| Statutes at Large | 123 Stat. 115 |
| Codification | |
| Acts amended | Energy Policy Act of 2005 Energy Policy Act of 1992 Public Utility Regulatory Policies Act of 1978 Public Utility Holding Company Act of 1935 |
| Titles amended | 16 U.S.C.: Conservation 42 U.S.C.: Public Health and Social Welfare |
| U.S.C. sections amended | 16 U.S.C. ch. 46 § 2601 et seq. 42 U.S.C. ch. 134 § 13201 et seq. 42 U.S.C. ch. 149 § 15801 et seq. |
| Legislative history | |
| |
| Major amendments | |
| Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | |
The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage, later revised to $831 billion between 2009 and 2019.[1] The ARRA's rationale was based on the Keynesian economic theory that, during recessions, the government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration.
The politics around the stimulus were very contentious, with Republicans criticizing the size of the stimulus. On the right, it spurred the Tea Party movement and may have contributed to Republicans winning the House in the 2010 midterm elections.[2][3][4] Not a single Republican member of the House voted for the stimulus,[5] and only three Republican senators voted for it.[6] Most economists have argued that the stimulus was smaller than needed.[3][7][8] Surveys of economists show overwhelming agreement that the stimulus reduced unemployment,[9][10] and that the benefits of the stimulus outweigh the cost.[9]
Both the House and the Senate versions of the bills were primarily written by Democratic congressional committee leaders and their staffs.[11] Because work on the bills started before President Obama officially took office on January 20, 2009, top aides to President-Elect Obama held multiple meetings with committee leaders and staffers. On January 10, 2009, President-Elect Obama's administration released a report[12] that provided a preliminary analysis of the impact to jobs of some of the prototypical recovery packages that were being considered.
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The House version of the bill, H.R. 1, was introduced on January 26, 2009[13] by Dave Obey, the chairman of the House Committee on Appropriations, and was co-sponsored by nine other Democrats. On January 23, Speaker of the House Nancy Pelosi said that the bill was on track to be presented to President Obama for him to sign into law before February 16, 2009.[14] Although 206 amendments were scheduled for floor votes, they were combined into only 11, which enabled quicker passage of the bill.[15]
On January 28, 2009, the House passed the bill by a 244–188 vote.[16] All but 11 Democrats voted for the bill, but not a single Republican voted in favor: 177 Republicans voted against it, while one Republican did not vote.[17]
The Senate version of the bill, S. 1, was introduced on January 6, 2009, and later substituted as an amendment to the House bill, S.Amdt. 570. It was sponsored by Harry Reid, the Majority Leader, co-sponsored by 16 other Democrats and Joe Lieberman, an independent who caucused with the Democrats.
The Senate then began consideration of the bill starting with the $275 billion tax provisions in the week of February 2, 2009.[14] A significant difference between the House version and the Senate version was the inclusion of a one-year extension of revisions to the alternative minimum tax, which added $70 billion to the bill's total.
Republicans proposed several amendments to the bill directed at increasing the share of tax cuts and downsizing spending as well as decreasing the overall price.[18] President Obama and Senate Democrats hinted that they would be willing to compromise on Republican suggestions to increase infrastructure spending and to double the housing tax credit proposed from $7,500 to $15,000 and expand its application to all home buyers, not just first-time buyers.[19] Other considered amendments included the Freedom Act of 2009, an amendment proposed by Senate Finance Committee members Maria Cantwell (D) and Orrin Hatch (R) to include tax incentives for plug-in electric vehicles.[20]
The Senate called a special Saturday debate session for February 7 at the urging of President Obama. The Senate voted, 61–36 (with 2 not voting) on February 9 to end debate on the bill and advance it to the Senate floor to vote on the bill itself.[21] On February 10, the Senate voted 61–37 (with one not voting)[22] All the Democrats voted in favor, but only three Republicans voted in favor (Susan Collins, Olympia Snowe, and Arlen Specter).[23] Specter switched to the Democratic Party later in the year. At one point, the Senate bill stood at $838 billion.[24]
Senate Republicans forced a near unprecedented level of changes (near $150 billion) in the House bill, which had more closely followed the Obama plan. A comparison of the $827 billion economic recovery plan drafted by Senate Democrats with an $820 billion version passed by the House and the final $787 billion conference version shows huge shifts within these similar totals. Additional debt costs would add about $350 billion or more over 10 years. Many provisions were set to expire in two years.[25]
The main funding differences between the Senate bill and the House bill were: More funds for health care in the Senate ($153.3 vs $140 billion), renewable energy programs ($74 vs. $39.4 billion), for home buyers tax credit ($35.5 vs. $2.6 billion), new payments to the elderly and a one-year increase in AMT limits. The House had more funds appropriated for education ($143 vs. $119.1 billion), infrastructure ($90.4 vs. $62 billion) and for aid to low income workers and the unemployed ($71.5 vs. $66.5 billion).[24]
Congressional negotiators said that they had completed the Conference Report on February 11.[35] On February 12, House Majority Leader Steny Hoyer scheduled the vote on the bill for the next day, before wording on the bill's content had been completed and despite House Democrats having previously promised to allow a 48-hour public review period before any vote. The Report with final handwritten provisions was posted on a House website that evening.[36][37] On February 13, the Report passed the House, 246–183, largely along party lines with all 246 Yes votes given by Democrats and the Nay vote split between 176 Republicans and 7 Democrats.[38][39]
The Senate passed the bill, 60–38, with all Democrats and Independents voting for the bill along with three Republicans. On February 17, 2009, President Barack Obama signed the Recovery Act into law.
Section 3 of ARRA listed the basic intent behind crafting the law. This Statement of Purpose included the following:
The Act specifies that 37% of the package is to be devoted to tax incentives equaling $288 billion and $144 billion, or 18%, is allocated to state and local fiscal relief (more than 90% of the state aid is going to Medicaid and education). The remaining 45%, or $357 billion, is allocated to federal spending programs such as transportation, communication, wastewater, and sewer infrastructure improvements; energy efficiency upgrades in private and federal buildings; extension of federal unemployment benefits; and scientific research programs. The following are details to the different parts of the final bill and the selected citizen to receive this Government Grants have to come up with $350 for the activation and they must clear the state tax according to the state percentage that will be refund it back along with the Grants.:[44][45][46][43]
Total: $237 billion
Total: $51 billion
ARRA included the enactment of the Health Information Technology for Economic and Clinical Health Act, also known as the HITECH Act.[48]
Total health care spending: $155.1 billion[49]
Total: $100 billion
Total: $82.2 billion
Total: $105.3 billion
Total: $48.1 billion,[51] some in the form of Transportation Investment Generating Economic Recovery (TIGER) Grants
Total: $18 billion[52][53][54][55][56]
Total: $7.2 billion
Total: $10.5 billion
Total: $27.2 billion
Total: $14.7 billion[61]
Total: $7.6 billion[citation needed]
Total: $10.6 billion
ARRA included a protectionist 'Buy American' provision, which imposed a general requirement that any public building or public works project funded by the new stimulus package must use only iron, steel and other manufactured goods produced in the United States.
A May 15, 2009, Washington Post article reported that the 'Buy American' provision of the stimulus package caused outrage in the Canadian business community, and that the government in Canada "retaliated" by enacting its own restrictions on trade with the U.S.[64] On June 6, 2009, delegates at the Federation of Canadian Municipalities conference passed a resolution that would potentially shut out U.S. bidders from Canadian city contracts, in order to help show support for Prime Minister Stephen Harper's opposition to the "Buy American" provision. Sherbrooke Mayor Jean Perrault, president of the federation, stated, "This U.S. protectionist policy is hurting Canadian firms, costing Canadian jobs and damaging Canadian efforts to grow in the world-wide recession." On February 16, 2010, the United States and Canada agreed on exempting Canadian companies from Buy American provisions, which would have hurt the Canadian economy.[65][66]
Economists such as Martin Feldstein, Daron Acemoğlu, National Economic Council director Larry Summers, and Nobel Memorial Prize in Economic Sciences winners Joseph Stiglitz[67] and Paul Krugman[68] favored a larger economic stimulus to counter the economic downturn. While in favor of a stimulus package, Feldstein expressed concern over the act as written, saying it needed revision to address consumer spending and unemployment more directly.[69] Just after the bill was enacted, Krugman wrote that the stimulus was too small to deal with the problem, adding, "And it's widely believed that political considerations led to a plan that was weaker and contains more tax cuts than it should have – that Mr. Obama compromised in advance in the hope of gaining broad bipartisan support."[70] Conservative economist John Lott was more critical of the government spending.[71]
On January 28, 2009, a full-page advertisement with the names of approximately 200 economists who were against Obama's plan appeared in The New York Times and The Wall Street Journal. This included Nobel Memorial Prize in Economic Sciences laureates Edward C. Prescott, Vernon L. Smith, and James M. Buchanan. The economists denied the quoted statement by President Obama that there was "no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy". Instead, the signers believed that "to improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."[72] The funding for this advertisement came from the Cato Institute.[73]
On February 8, 2009, a letter to Congress signed by about 200 economists in favor of the stimulus, written by the Center for American Progress Action Fund, said that Obama's plan "proposes important investments that can start to overcome the nation's damaging loss of jobs", and would "put the United States back onto a sustainable long-term-growth path".[74] This letter was signed by Nobel Memorial laureates Kenneth Arrow, Lawrence R. Klein, Eric Maskin, Daniel McFadden, Paul Samuelson and Robert Solow. The New York Times published projections from IHS Global Insight, Moodys.com, Economy.com and Macroeconomic Advisers that indicated that the economy may have been worse without the ARRA.[75][76]
A 2019 study in the American Economic Journal found that the stimulus had a positive impact on the US economy, but that the positive impact would have been greater if the stimulus had been more frontloaded.[77]
The CBO estimated ARRA would positively impact GDP and employment. It projected an increase in the GDP of between 1.4 percent and 3.8 percent by the end of 2009, between 1.1 percent and 3.3 percent by the end of 2010, between 0.4 percent and 1.3 percent by the end of 2011, and a decrease of between zero and 0.2 percent beyond 2014.[78] The impact to employment would be an increase of 0.8 million to 2.3 million by the end of 2009, an increase of 1.2 million to 3.6 million by the end of 2010, an increase of 0.6 million to 1.9 million by the end of 2011, and declining increases in subsequent years as the U.S. labor market reaches nearly full employment, but never negative.[78] Decreases in GDP in 2014 and beyond are accounted for by crowding out, where government debt absorbs finances that would otherwise go toward investment.[78] A 2013 study by economists Stephen Marglin and Peter Spiegler found the stimulus had boosted GDP in line with CBO estimates.[79]
A February 4, 2009, report by the Congressional Budget Office (CBO) said that while the stimulus would increase economic output and employment in the short run, the GDP would, by 2019, have an estimated net decrease between 0.1% and 0.3% (as compared to the CBO estimated baseline).[80]
The CBO estimated that enacting the bill would increase federal budget deficits by $185 billion over the remaining months of fiscal year 2009, by $399 billion in 2010, and by $134 billion in 2011, or $787 billion over the 2009–2019 period.[81]
In a February 11 letter, CBO Director Douglas Elmendorf noted that there was disagreement among economists about the effectiveness of the stimulus, with some skeptical of any significant effects while others expecting very large effects.[78] Elmendorf said the CBO expected short term increases in GDP and employment.[78] In the long term, the CBO expects the legislation to reduce output slightly by increasing the nation's debt and crowding out private investment, but noted that other factors, such as improvements to roads and highways and increased spending for basic research and education may offset the decrease in output and that crowding out was not an issue in the short term because private investment was already decreasing in response to decreased demand.[78]
In February 2015, the CBO released its final analysis of the results of the law, which found that during six years:[82]
A May 21, 2009, article in The Washington Post stated, "To build support for the stimulus package, President Obama vowed unprecedented transparency, a big part of which, he said, would be allowing taxpayers to track money to the street level on Recovery.gov..." But three months after the bill was signed, Recovery.gov offers little beyond news releases, general breakdowns of spending, and acronym-laden spreadsheets and timelines." The same article also stated, "Unlike the government site, the privately run Recovery.org is actually providing detailed information about how the $787 billion in stimulus money is being spent."[83]
Reports regarding errors in reporting on the Web site made national news. News stories circulated about Recovery.gov reporting fund distribution to congressional districts that did not exist.[84][85]
A new Recovery.gov website was redesigned at a cost estimated to be $9.5 million (~$13 million in 2023) through January 2010.[86]
On July 20, 2009, the Drudge Report published links to pages on Recovery.gov that Drudge alleged were detailing expensive contracts awarded by the U.S. Department of Agriculture for items such as individual portions of mozzarella cheese, frozen ham and canned pork, costing hundreds of thousands to over a million dollars. A statement released by the USDA the same day corrected the allegation, stating that "references to '2 pound frozen ham sliced' are to the sizes of the packaging. Press reports suggesting that the Recovery Act spent $1.191 million to buy "2 pounds of ham" are wrong. In fact, the contract in question purchased 760,000 pounds of ham for $1.191 million, at a cost of approximately $1.50 per pound."[87]
As of 2016, the servers for recovery.gov have been shut down and the site is unavailable.[88]
The Congressional Budget Office reported in October 2009 the reasons for the changes in the 2008 and 2009 deficits, which were approximately $460 billion and $1.41 trillion, respectively. The CBO estimated that ARRA increased the deficit by $200 billion (~$276 billion in 2023) for 2009, split evenly between tax cuts and additional spending, excluding any feedback effects on the economy.[89]
On February 12, 2010, the Bureau of Labor Statistics, which regularly issues economic reports, published job-loss data on a month-by-month basis since 2000.[90] Organizing for America, a community organizing project of the Democratic National Committee, prepared a chart presenting the BLS data for the period beginning in December 2007. OFA used the chart to argue, "As a result [of the Recovery Act], job losses are a fraction of what they were a year ago, before the Recovery Act began."[91] Others argue that job losses always grow early in a recession and naturally slow down with or without government stimulus spending, and that the OFA chart was misleading.
In the primary justification for the stimulus package, the Obama administration and Democratic proponents presented a graph in January 2009 showing the projected unemployment rate with and without the ARRA.[12] The graph showed that if ARRA was not enacted the unemployment rate would exceed 9%; but if ARRA was enacted it would never exceed 8%. After ARRA became law, the actual unemployment rate exceeded 8% in February 2009, exceeded 9% in May 2009, and exceeded 10% in October 2009. The actual unemployment rate was 9.2% in June 2011 when it was projected to be below 7% with the ARRA. However, supporters of the ARRA claim that this can be accounted for by noting that the actual recession was subsequently revealed to be much worse than any projections at the time when the ARRA was drawn up.[citation needed]
According to a March 2009 Industry Survey of and by the National Association of Business Economists, 60.3% of their economists who had reviewed the fiscal stimulus enacted in February 2009 projected it would have a modest impact in shortening the recession, with 29.4% anticipating little or no impact as well as 10.3% predicting a strong impact. The aspects of the stimulus expected by the NABE to have the greatest effectiveness were physical infrastructure, unemployment benefits expansion, and personal tax-rate cuts.[92]
One year after the stimulus, several independent macroeconomic firms, including Moody's and IHS Global Insight, estimated that the stimulus saved or created 1.6 to 1.8 million jobs and forecast a total impact of 2.5 million jobs saved by the time the stimulus is completed.[93] The Congressional Budget Office considered these estimates conservative.[93] The CBO estimated according to its model 2.1 million jobs saved in the last quarter of 2009, boosting the economy by up to 3.5 percent and lowering the unemployment rate by up to 2.1 percent.[94] The CBO projected that the package would have an even greater impact in 2010.[94] The CBO also said, "It is impossible to determine how many of the reported jobs would have existed in the absence of the stimulus package."[95] The CBO's report on the first quarter of 2010 showed a continued positive effect, with an employment gain in that quarter of up to 2.8 million and a GDP boost of up to 4.2 percent.[96] Economists Timothy Conley of the University of Western Ontario and Bill Dupor of the Ohio State University found that while the stimulus' effects on public sector job creation were unambiguously positive, the effects on private sector job creation were ambiguous.[97] Economist Dan Wilson of the Federal Reserve, who used similar methodology, without the same identified errors, estimates that "ARRA spending created or saved about 2 million jobs in its first year and over 3 million by March 2011."[98]
The CBO also revised its assessment of the long-term impact of the bill. After 2014, the stimulus is estimated to decrease output by zero to 0.2%. The stimulus is not expected to have a negative impact on employment in any period of time.[99]
In 2011, the Department of Commerce revised some of its previous estimates. Economist Dean Baker commented:
[T]he revised data ... showed that the economy was plunging even more rapidly than we had previously recognised in the two quarters following the collapse of Lehman. Yet, the plunge stopped in the second quarter of 2009 – just as the stimulus came on line. This was followed by respectable growth over the next four quarters. Growth then weakened again as the impact of the stimulus began to fade at the end of 2010 and the start of this year. In other words, the growth pattern shown by the revised data sure makes it appear that the stimulus worked. The main problem would seem to be that the stimulus was not big enough and it wasn't left in place long enough to lift the economy to anywhere near potential output.[100]
The Democratic Congressional Campaign Committee (DCCC) established a "Hypocrisy Hall of Fame" to list Republican Representatives who had voted against ARRA but who then sought or took credit for ARRA programs in their districts. As of September 2011, the DCCC was listing 128 House Republicans in this category.[101] Newsweek reported that many of the Republican legislators who publicly argued that the stimulus would not create jobs were writing letters seeking stimulus programs for their districts on the grounds that the spending would create jobs.[102]
The stimulus has been criticized as being too small. In July 2010, a group of 40 prominent economists issued a statement calling for expanded stimulus programs to reduce unemployment. They also challenged the view that the priority should be reducing the deficit: "Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s."[103]
In July 2010, the White House Council of Economic Advisers (CEA) estimated that the stimulus had "saved or created between 2.5 and 3.6 million jobs as of the second quarter of 2010".[104] At that point, spending outlays under the stimulus totaled $257 billion and tax cuts totaled $223 billion.[105] In July 2011, the CEA estimated that as of the first quarter of 2011,[106] the ARRA raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million. The sum of outlays and tax cuts up to this point was $666 billion. Using a straight mathematical calculation, critics reported that the ARRA cost taxpayers between $185,000 to $278,000 per job that was created, though this computation does not include the permanent infrastructure that resulted.
In August 2010, Republican Senators Tom Coburn and John McCain released a report listing 100 projects it described as the "most wasteful projects" funded by the Act. In total, the projects questioned by the two senators amounted to about $15 billion, or less than 2% of the $862 billion. The two senators did concede that the stimulus has had a positive effect on the economy, though they criticized it for failing to give "the biggest bang for our buck" on the issue of job creation. CNN noted that the two senators' stated objections were brief summaries presenting selective accounts that were unclear, and the journalists pointed out several instances where they created erroneous impressions.[107]
One of the primary purposes and promises of the Act was to launch a large number of "shovel ready" projects that would generate jobs.[108] However, a sizable number of these projects, most of which pertained to infrastructure, took longer to implement than they had expected by most.[109] By 2010, Obama said he had come to realize 'there's no such thing as shovel-ready projects.'[110]
Some of the tax incentives in the Act, including those related to the American opportunity tax credit and Earned Income Tax Credit, were extended for a further two years by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.[111]
In November 2011, the Congressional Budget Office (CBO) updated its earlier reports concerning the Act. The CBO stated that "the employment effects began to wane at the end of 2010 and have continued to do so throughout 2011." Nevertheless, in the third quarter of 2011, the CBO estimated that the Act had increased the number of full-time equivalent jobs by 0.5 million to 3.3 million.[112] Section 1513 of the Recovery Act stated that reports on the impact of the act were to be submitted quarterly, however the last report issued occurred for the second quarter of 2011.[113] As of December 2012, 58.6% of Americans are employed.[114][115]
In 2013, the Reason Foundation, an American libertarian group, conducted a study of the results of the ARRA. Only 23% of the 8,381 sampled companies hired new workers and kept all of them when the project was completed. Also, just 41% of sampled companies hired workers at all, while 30% of sampled companies did hire but laid off all workers once the government money stopped funding.[116] These results cast doubt on previously stated estimates of job creation numbers, which do not factor those companies that did not retain their workers or hire any at all.
In February 2014, the White House stated in a release that the stimulus measure saved or created an average of 1.6 million jobs a year between 2009 and 2012, thus averting having the recession descend into another Great Depression. Republicans, such as House Speaker John Boehner of Ohio, criticized the report since, in their views, the Act cost too much for too little result.[117]
In addition to the Vice President Biden's oversight role, a high-level advisory body, the President's Economic Recovery Advisory Board (later renamed and reconstituted as the "President's Council on Jobs and Competitiveness"), was named concurrent to the passage of the act.
As well, the President named Inspector General of the United States Department of the Interior Earl Devaney and the Recovery Accountability and Transparency Board (RATB) to monitor administration of the Act, and prevent low levels of fraud, waste and loss in fund allocation.[118][119] Eleven other inspectors general served on the RATB, and the board also had a Recovery Independent Advisory Panel.
In late 2011, Devaney and his fellow inspectors general on RATB, and more who were not, were credited with avoiding any major scandals in the administration of the Act, in the eyes of one Washington observer.[120]
In May 2016, the chairman of the U.S. Senate Finance Committee, Senator Orrin Hatch (R-UT), launched the first steps of an investigation into a part of the stimulus law that gave grants to solar and green energy companies. Hatch sent a letter to the IRS and Treasury Department with a list of questions about the program. According to the Wall Street Journal, letters from senior senators who chair committees can lead to formal investigations by Congress.[121]
One part of the stimulus law, Section 1603, gave cash grants to solar companies to encourage investment in solar technology. Because many companies did not yet make a profit in 2009 in that industry, they were offered cash instead of tax credits. In September 2015, the U.S. government asked that a Spanish company return $1 million (~$1.26 million in 2023) it had received from the program. The company issued a statement saying it fully complied with the request.[121]
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