Fiscal Stimulus 2009
Jun 24, · Known as the American Recovery and Reinvestment Act of , and nicknamed the Recovery Act, the stimulus package was enacted by the th U.S. Congress and signed into law by Obama in February , just weeks into his first term. Lawmakers crafted it in response to the Great Recession, which erupted in the fall of Author: Christian Long. Mar 07, · The stimulus package is called the American Recover and Reinvestment Act of , and it was signed into law on February 17, You can read the full version of .
With the economy now in recession since December and shedding nearly two million jobs during this time, the new Administration is quite sensibly focused on how to best get the economy moving again. It should be noted that this stimulus package is the third round of stimulus in less than twelve months. All certainly hope that round three will be the last and final installment, but that may well be wishful thinking. While we all agree that we need to move the economy back to sustainable growth, the role and form of fiscal stimulus is less than clear.
A good place to start is a set of principles to guide policy. First and foremost, demand-side countercyclical fiscal policy should be designed with proper consideration of how such policies affect the prospects for longer-term economic growth. Fiscal stimulus is deficit financed, increases the government debt and can have an offsetting effect on long term economic performance through higher long-term interest rates.
Fiscal stimulus needs to avoid financing other policy objectives merely relabeled as stimulus for political expediency, but with no real immediate effect on output.
The first line of defense for counter-cyclical policies to stabilize the economy and bring it back what r the symptoms of heart blockage full employment is monetary policy. This avenue, however, has been largely exhausted. Moreover, even if this arsenal were not empty, conventional wisdom holds that it takes six to nine months what is the stimulus plan 2009 reductions in the Federal Funds target rate to work their way through the economy.
Indeed, the main rationale for fiscal stimulus is that further changes in monetary policy may not be effective. Whatever the form of fiscal stimulus, there should be a strong what is the current time in athens preference for stimulus that will work quickly to stimulate demand.
Demand-side fiscal stimulus that is temporary will have the greatest chance of moving aggregate demand without negatively affecting long term growth through higher long-term interest rates. Fiscal stimulus that both encourages economic activity and simultaneously improves the prospects for long-term economic growth is a win-win.
An example of such a policy is the lower tax rates on dividends and capital gains enacted in This policy simultaneously provided support to the equity markets and encouraged business investment at a critical juncture in the recovery, and also improved prospects for economic growth in the longer-term by reducing a number of tax biases, such as the tax bias for debt finance, for underinvestment in the non-corporate sector, and against firm dividend payments.
Ultimately, fiscal stimulus needs to work. Much of debate on stimulus thus far has centered on what fraction takes the form of tax cuts rather than spending. Presumably, even the proponents of tax cuts would not support a fiscal stimulus package dominated by tax cuts that were shown to be ineffectual for moving the economy in the near term, and did nothing to improve supply-side economic growth in the long term or actually degraded long-term growth by increasing long-term interest rates.
Similarly, proponents of higher government spending presumably would not support a package dominated by spending with similar effects. The effects of many types of fiscal stimulus are uncertain in both their timing and magnitude. Even if policies have been successful in the past, this recession may well be different. Pursuing a broad how to earn extra cash quick of policies means that there is a greater chance that the overall package will have positive effects.
One point to make it that there are a broad set of spending and tax provisions included in the package. One could view this as a diversified policy approach to addressing the current economic turmoil. Another point, however, is that many of the provisions, especially on what is the stimulus plan 2009 spending side, appear unlikely to be delivered quickly.
Only about 15 percent of the proposed spending i. In contrast, roughly 35 percent of the tax relief i. Through fiscal yearthese percentages are 53 percent on the spending side and 98 percent on the tax side. Thus, based on the CBO, it would appear that the tax cuts will be delivered much more quickly than the spending increases. Of course, as discussed above, ultimately we are interested in policies that will work; that is, that will help bring the economy back to full employment.
Just as spending that is slow to make its way into the economy is unlikely to have immediate effects, tax cuts that are delivered quickly, but saved, are unlikely to have significant effects on consumer spending. Again, seeing a broad range of policies contained in the package should give us some comfort, but it would seem that the emphasis on spending programs, which, as noted by the CBO, many of which involve construction or investment activity that would take several years to complete, may not quite be the medicine the economy needs.
The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work? We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better? Fiscal Stimulus January 29, Robert Carroll. Do no harm. A strong policy preference for stimulus that works quickly.
The form of stimulus is less important than its success. A diverse set of policies is more likely to succeed. Was this page helpful to you? Thank You! Let us know how we can better serve you! Give Us Feedback. Related Articles.
The Act's Provisions
Jan 29, · With the economy now in recession since December and shedding nearly two million jobs during this time, the new Administration is quite sensibly focused on how to best get the economy moving again. It has put forward an economic stimulus package of more than $ billion composed primarily of higher spending, but also with tax cuts. Stimulus Plan Dissected. President Barack Obama has signed into law the $ billion stimulus package. The plan, is aimed at lifting the economy out of recession and intends to create millions of jobs and boost consumer spending. On February 17, , President Obama signed into law the American Recovery and Reinvestment Act (ARRA) of , H.R. 1. The spending and tax–cut plan is intended to help stabilize state budgets and spur economic growth. The stimulus package commits a total of $ billion nationwide, and it will have a significant fiscal impact on California.
This report focuses on the state aid component of the stimulus package, as it consists of the federal dollars with which the Legislature will be most involved. The Director of Finance and State Treasurer will determine their own estimate of the latter amount by April 1 of this year. In that case, it may be possible to use additional federal education dollars for budgetary relief. The Legislature will need to take many actions in the coming months to ensure that the funds are used in ways that meet its priorities and preferences.
To assist in this process, we offer the following considerations in making decisions regarding these new federal funds:.
Totals a. The spending and tax—cut plan is intended to help stabilize state budgets and spur economic growth. Figure 1 shows how ARRA funding falls into three main categories. A variety of tax provisions intended to boost the economy will cost the U. In some of the program areas, the year—by—year flows of funds are estimates and may occur differently than depicted in Figure 2. In addition, this figure does not capture the unknown, but potentially significant additional federal funds that the state is likely to receive when it applies for competitive grant funding included in ARRA.
This source of funding and the others shown in Figure 3 are discussed in more detail later in this report. Language Open to Interpretation. The language in the —10 Budget Act describing what needs to happen in order for the trigger to be reached is somewhat open to interpretation. This is because our estimate is based on the level of state revenues assumed in the —10 Budget Act and the corresponding level of support provided for state education programs.
Ultimately, the interpretation of this provision of statute is a matter for the Director of Finance and the State Treasurer to decide. The administration has indicated that its preliminary conclusion is that the available federal funds will be insufficient to avoid the tax increase and cuts contained in the February budget package. In response, the Legislature will need to take many actions in the coming months to ensure that the funds are used in ways that meet its priorities and preferences.
To assist in that process, we discuss below some key considerations in making decisions regarding these new federal funds. Given both the deteriorating economic situation and the gloomy out—year state budget forecast, we believe the Legislature must maximize the use of stimulus dollars to offset General Fund expenditures.
In this report, we make specific recommendations about how to do so. Some federal dollars may only be available for General Fund relief in certain situations such as certain education funds if state revenues decline further. Most of the state aid coming to California is intended to supplement current state spending.
There is the risk, however, that the higher levels of service provided by the federal dollars will create ongoing expectations of state support once the funding expires. There are ways to limit this risk:. Act Quickly in a Handful of Cases. In certain instances, the state will need to act rapidly to ensure it receives the maximum amount of relief or to use the funds in the most effective way possible.
We have identified the following situations where quick action is needed:. For most of the new federal dollars and programs, the Legislature will have more time to take necessary actions.
Similarly, the Legislature can use policy and budget subcommittee hearings to:. Below, we describe by program the additional federal funding the state will be receiving and major issues for legislative consideration. The ARRA also allows the state to apply directly for billions of dollars in additional grants and subsidized bonds.
In addition, ARRA offers the potential for California to benefit indirectly from billions more in competitive grants, tax credits, and subsidies to individuals, colleges, and local educational agencies LEAs. Competitive program supports states that demonstrate need in certain education areas including teacher quality, student data systems, and assessment systems and presents innovative ways to address those needs.
Supplemental services for low-income students and support for low-performing schools. Individuals With Disabilities Education Act. Supplemental services for special education students. Child Care and Development Block Grant. The rest must supplement state funding for child care for low-income families. Enhancing Education Through Technology. Classroom use of technology. Funds may be used for hardware, software, infrastructure improvement, and professional development. McKinney-Vento Homeless Assistance.
School districts' efforts to educate homeless youth. Child Nutrition. Assistance to high-need districts in purchasing meal-related equipment. Institute of Education Sciences Grant. School Construction Subsidies.
Tax credit bonds for public school construction or repair. Qualified Zone Academy Bonds. Interest-free tax credit bonds for qualified infrastructure efforts.
Impact Aid. Facility cost funding for districts with high percentages of students living on federal land. Competitive program to help districts and states develop performance-based compensation systems for teachers and administrators. Funds do not pass through state. The majority of stabilization funding will support education 82 percent , with the remainder set aside for other government services.
According to the most recent U. States must follow specific rules for distributing this funding between K—12 and higher education, as well as allocating funding within those sectors. While funding does not need to be used for K—12 or higher education, the law specifically permits such uses, including school building modernization, renovation, and repair.
The —10 budget package assumes that these funds will be used to offset General Fund costs. The USED is to award these grants on a competitive basis. The portion going to states will be distributed according to their identified fiscal and program needs. At least 50 percent of the state money must be distributed to LEAs based on their Title 1 counts number of low—income students. To receive fiscal stabilization funds, the state must maintain at least the same level of state support for K—12 and higher education as in — Secretary of Education can waive or modify this requirement.
Fiscal stabilization funds must first be used to mitigate state funding cuts for K—12 and higher education in , , and Funds for K—12 education must be allocated based on existing funding formulas, whereas states have discretion in how they allocate funds for higher education. If a federal award is less than needed to restore education funding to or levels, then funds must be allocated in proportion to the relative shortfalls that exist for K—12 and higher education.
The ARRA funding typically is intended to be used consistent with existing program rules. It also funds several one—time opportunities for state or local improvements to K—12 infrastructure and systems. Title I. As a condition of receiving these funds, the California Department of Education CDE must provide the USED with information on the current per—pupil distribution of state and local funds. Special Education Funding. Consistent with IDEA, funding must be used to ensure that special education students receive a free and appropriate education as determined by their individualized education programs.
Local savings resulting from a MOE reduction must be used for federal education priorities. These CCDBG funds are intended to allow the state to provide care to more children than otherwise would have been possible. Allowable uses include funding more child care slots, reducing family fees for child care, supplementing provider fees, lowering eligibility requirements to enable more families to use services, and professional development and recruitment of providers.
Funds may not be used to construct facilities. Generally, EETT funds are intended to improve the use of technology in the classroom. Funds may be used to purchase hardware or software, undertake professional development, and support instructional technology staff and services at the local level.
McKinney—Vento Homeless Assistance. Generally, these funds are intended to help districts improve the enrollment, attendance, and success in school of homeless children. Child Nutrition Equipment. The CDE is required to allocate these funds to LEAs through a competitive process based upon need for equipment assistance.
Priority is to be given to schools with at least 50 percent of the student population eligible for free or reduced price meals. Student Longitudinal Data System Grants. New Subsidized School Construction Bonds. These bonds may be issued by state or local governments for 1 construction, rehabilitation, or repair of public school facilities; or 2 the acquisition of land on which a public school will be constructed.
The amount of new bonds that states including local governments within the state can issue is based upon the number of children living below the poverty line in each state. A portion of this amount is reserved for large school districts to issue bonds directly. Qualified Zone Academy Bond. These subsidized bonds can be used to improve facilities or provide teacher training for school districts in certain high poverty areas.
To participate, school districts must partner with a local business and develop an academic program that better prepares students for college or the workforce. The ARRA requires that 40 percent of this funding be distributed via formula grants directly to eligible districts and 60 percent be available for competitive grants.
Impact Aid monies are intended to fund facility costs for districts with high percentages of students living on military bases and Native American reservations. States or districts with innovative program ideas in this area may apply for the grants. The federal stimulus package funds five targeted higher education programs, which will provide benefits directly to California colleges or students. None of these programs require state administration.
Higher Education Tax Credits.