Obama's $825B stimulus plan includes spending, tax cuts

ByRichard Wolf, USA TODAY
January 15, 2009, 11:09 PM

WASHINGTON -- President-elect Barack Obama's $825 billion plan to jump-start the economy and create or save up to 4 million jobs includes twice as much money for spending as for tax cuts, setting up an early battle with Republicans in Congress who favor a different approach.

House Democrats unveiled the first details Thursday of the package, which is likely to change — and get even more expensive — as it moves through the House and Senate. Obama wants it on his desk by mid-February.

The emergency package includes $550 billion to be spent within two years — more than the government spends annually on programs not including defense and benefit programs such as Medicare and Social Security.

About $318 billion would go to cash-strapped state and local governments facing the prospect of layoffs or tax increases. The money will go toward such things as school repairs and road construction and help pay for rising Medicaid costs.

An additional $102 billion would help victims of the recession with unemployment insurance, health care, food stamps and job training. Jobless aid, available for up to 59 weeks, would be increased by about $25 a week.

Much of the $275 billion in tax cuts would go to middle-income families in the form of $1,000 tax cuts ($500 for individuals). An array of business and other tax cuts would make up the remainder.

The spending-to-tax-cut ratio was decided by House Democrats concerned that most of last year's tax cuts didn't get spent. "We wanted to get the biggest bang for the buck," said House Speaker Nancy Pelosi.

Rep. David Obey, D-Wis., chairman of the House Appropriations Committee, described the plan as "the largest effort by any legislative body on the planet to try to take government action to prevent economic catastrophe." But he said it might not be enough. "This isn't the last one," he said.

House Minority Leader John Boehner, R-Ohio, called it "everything all these agencies ever wanted to do, but they never could quite find the money to get them done." He singled out for ridicule proposals to spend $650 million on digital television conversion assistance and $600 million on alternative-fuel vehicles for the federal government.

While the package was not written by Obama's aides, they spent weeks negotiating its provisions with congressional Democrats. Obama had sought $775 billion but acknowledged the number was likely to rise.

Obama did not get all that he wanted. A tax credit that was intended to give companies $3,000 for every new hire was jettisoned, and less money would go to help businesses write off their losses.

A look at some of the stimulus plans:

Energy: $58 billion

Will it help?

Shelley Fidler, a partner at law firm Van Ness Feldman, says updating the nation's aging electric grid would create many jobs. GridWise Alliance says a $16 billion outlay would create 280,000 jobs in four years.

Attorney Edwin Feo, who chairs the energy group at Milbank Tweed Hadley & McCloy, says major job creation could take time as new power lines require state approvals. Weatherizing homes "puts people to work quickly."

Tax credits for clean energy might be less effective. With fossil fuel prices falling, investment might be meager, says Bruce Bullock, head of the Maguire Energy Institute at Southern Methodist University.

Where does the money go?

$32 billion:Fund a smart electricity grid

$20 billion-plus:Renewable energy tax cuts and a tax credit for research on energy efficiency and clean energy, plus a multiyear extension of the green energy production tax credit

$6 billion:Weatherize modest-income homes

Tax cuts: $275 billion

Where does the money go?

•A payroll tax credit of $500 a person, or $1,000 for married couples. By targeting payroll taxes, the credit would benefit low-income working families who have payroll taxes withheld from their paychecks but don't earn enough to pay income taxes, says Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.

•A $2,500 tax credit for the first four years of higher education. This credit would replace the current lineup of education tax credits and deductions, such as the Hope and Lifetime Learning Credits.

•A $7,500 first-time home buyer's credit. Last year, Congress approved a $7,500 credit for first-time home buyers, but there's a catch: The money has to be repaid in equal installments over 15 years, starting in the second year after the home is purchased.

The stimulus bill would eliminate the repayment requirement, but the home would have to be purchased by July 1.

Education: $141.6 billion

Will it help?

"It will mean a great deal to the districts, assuming it can be disbursed in a timely manner, because we're all working on budgets right now," says Randy Collins, president of the American Association of School Administrators (AASA) and superintendent of Waterford, Conn., schools. "The worst thing would be for us to continue down the road of cutting positions and then find out we have money that we could have held the positions and tried to restore them. So the speed of the money will be important. Nothing moves quickly, but I would say within 60 days we should know what's coming, anyway … and then we can avoid layoffs."

Where does the money go?

$62 billion:To school districts through various programs, including $21 billion for school modernization

$39 billion:State aid to school districts and public colleges and universities to prevent cutbacks to key services

$15.6 billion:To states for hitting performance measures

$25 billion:Fund to help states to prevent layoffs of "critical" public employees, including teachers

Infrastructure: $90 billion

Will it help?

Yes, because infrastructure projects are a good way to put a lot of people to work, says Harvard economist Linda Bilmes.

Maintenance work can be done immediately, but most larger projects need time to complete pre-construction work, she says.

"The challenge is to invest in those things that are good for the country, but be aware of the fact that the economic impact of those things will be in year two, year three or year four, and have enough upfront money to mitigate the worst effects of the economic problems," Bilmes says.

Where does the money go?

$30 billion:Highway construction

$10 billion:Rail and transit projects

$31 billion:Modernize federal and other public buildings for long-term energy savings

$19 billion:Water projects

Aid to the poor and unemployed: $102 billion

Will it help?

The stimulus legislation could help as many as 500,000 unemployed workers who are without benefits, says Maurice Emsellem, policy co-director at the National Employment Law Project. Currently, 37% of those who are unemployed are collecting state benefits, the law project estimates. The rest have either exhausted their benefits or are not eligible.

Bolstering unemployment insurance helps the economy, says Robert Reich, a former Labor secretary who teaches at the University of California-Berkeley. "There's no better way to get money into the economy and stimulate spending than to give it to someone who has very little of it," Reich says.

Where does the money go?

$43 billion:Increased unemployment benefits and job training

$39 billion:Health insurance and Medicaid coverage for the unemployed

$20 billion:Increase in food-stamp benefit by 13%

Health care: About $111.1 billion

Will it help?

Parts of the plan will provide stimulus, particularly the extra payments to the states for Medicaid, while the rest offers "small down payments" on the administration's goals, says economist Paul Ginsburg of the non-partisan Center for Studying Health System Change. "The extra Medicaid money to the states means they will avoid having to cut in other areas," he says.

The change to the federal COBRA law could allow workers to remain on their former employer's health plans until old enough to enroll in Medicare. "That is a pretty dramatic health policy step to address the difficulty some near-elderly have in getting health coverage," Ginsburg says.

Where does the money go?

$87 billion:Help states pay for Medicaid, which provides health care for low-income residents

$20 billion:Computerize health records to prevent medical mistakes

$4.1 billion:Provide preventive care and to evaluate the most effective medical treatments

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