Stimulus Report Card: Is It the Right Fix?

Jan. 28, 2009— -- It's not just politicians who are arguing over the particulars of the $819 billion economic stimulus bill on Capitol Hill.

Economists are engaged in their own debate about which parts of President Obama's economic package are really stimulative, which are social policy and which will swiftly create jobs and encourage spending.

"I think it's very, very hard to get it exactly right," said economist Rosanne Altshuler, co-director of the Urban-Brookings Tax Policy Center.

Experts say that you need a combination of carefully timed tax cuts and spending programs to truly stimulate the economy.

"You want the bill to have a sustainable impact," said former Federal Reserve Governor Laurence Meyer. "You'd like some of it to come in very quickly, but you don't want it to die out very quickly."

The problems ailing the economy -- the housing crisis, the credit squeeze, deflated consumer spending -- call for different cures. President Obama's plan offers a wide variety, such as highway construction, renewable energy projects and small business tax credits.

But not all spending is created equal. So ABC News asked three economists -- Meyer, Altshuler and Moody's Economy.com's Mark Zandi -- to grade parts of the package solely on their ability to stimulate economic activity.

The bill allocates $54 billion towards increasing food stamps and extending unemployment benefits. Everyone on the panel gave that an "A."

"That is money that comes quickly into the system and is mostly spent," said Meyer. "That is a perfect example of an effective short-term stimulus."

Another provision gives $79 billion to help states that are fighting budget deficits and crumbling infrastructure.

"I'll give it a 'B-plus,' because I'm not exactly sure how the states are going to spend the money," Altshuler said.

"I'd give that an "A" because this will forestall major cuts in jobs and other government programs," Zandi said.

As a whole, the panel was slightly less enthusiastic about the $144 billion allocated towards a "Making Work Pay" tax credit of up to $500 per person, or $1,000 per working family, which President Obama pledged during his campaign.

They said lowering payroll taxes to boost paychecks is a good way to stimulate spending, but that some of this credit would be delivered as a tax refund, which delays the benefit.

"This could be improved to the extent they find a way to get these checks that are going to be the refundable credits to taxpayers sooner," Meyer said.

The lowest marks went to one of the smallest provisions -- $50 million for the National Endowment for the Arts.

"We should be supporting the arts, but I don't see this as being good stimulus," said Altshuler.

"A stimulus is something that will help the economy create a lot of jobs and incomes, or at least save jobs in the near term, and this won't help," said Zandi.

The panel was skeptical of the $2.6 billion tax credit for first-time homebuyers. The economists thought that for real stimulus, it should be expanded to give help to all homebuyers.

"I really don't think that this provision is going to be enough to get people to buy homes right now," said Altshuler.

While concerns about the plan remain, all the economists agreed that government money needs to get into the economy -- fast.

For the package as a whole, the economists gave it two "B-plusses" and one "B."