08 Stimulus

With signs that the fracturing real estate market was putting a damper on the economy, Congress passed a $152 billion stimulus package in early '08. It may sound like chump change when compared to the nearly $800 billion Congress pumped into the economy in early '09, but that doesn't mean the package wasn't heatedly debated. Below is an archive of that debate.

the debate over the '08 stimulus

Not all economists agreed a stimulus package was necessary (or would be effective). For those gung-go on an immediate boost, however, "targetted, timely and temporary" was the going mantra on Capitol Hill - getting cash to consumers and producers as soon as possible and with the biggest bang for the buck. Still, there were different schools of thought on what were the best ways to target cash back into the economy.

Remarkably, House leaders and the president quickly pulled together a compromise stimulus package in late January '08 - which the Senate approved with modest additions. Below is a wrap up of the original debate over what should be in a stimulus package, the House bill, the bill Senate leaders wanted to pass - and the final deal that reached the president's desk in February.

Most of the disagreement over the stimulus plan was where to "target" money, but there was also a chorus of critics who say more should be done to fix the structural problems that got us into this (pre)recession mess.

target: business

Republicans preferred the idea of tax cuts for businesses to boost short term growth. Democrats were also inclined to go along with a business boosters, as long as they were directed toward small businesses and/or are tailored to promote investment.

target: consumer

Both parties liked the idea of tax cuts - or other forms of cash handouts - to consumers (like you and me), but they didn't necessarily share views on how or who to give those cuts to. Some of the options that were on the table:

  • Every tax payer gets a rebate: As in 2002, the government would send tax payers a rebate check to get more spending cash in their pockets.
  • Targetted to low and middle class families: Some economists argued that you get the biggest bang for your tax cut buck by focusing on poorer Americans who are more likely to spend any extra cash immediately, rather than put some away for retirement. The extra cash could come by dropping the 10% bracket, boosting the earned income tax rebate or as a cut to payroll taxes.
  • Other benefits: similar to tax cuts for the under-wealthy, extending or enlarging benefits - for unemployment, "trade adjustment assistance," food stamps, or heating aid - also gets spending money into the hands of people ready to spend it. There was some talk of "wage insurance" programs that would supplement income for downsized workers that have taken a major paycut. Although extended unemployment insurance wasn't included in the initial stimulus bill, Congress is still working on temporarily adding 13-26 weeks of unemployment checks for those looking for work, at a cost of about $11 billion over 10 years.
  • Long term cuts: given that the Bush tax cuts of '01 and '02 are set to expire in 2010, the GOP also wanted take this time to keep those cuts in place by voting to extend them past 2010 - but the president said, for the sake of a quick compromise, we shouldn't be talking long term tax cuts (which wouldn't help the immediate economic situation).

target: the state

A third way to go was to invest a lot of cash into building infrastructure - roads, airports, etc. - which has the double advantage of creating jobs in the short term and investing in future business (which benefits from a strong infrastructure), but economists seemed to agree that any "short term" boost would actually take too long to have an impact.

Not as much about adding a boost to the economy - but to forstall another potential drag, some lawmakers pushed helping states in tight fiscal times, with either direct state handouts or by increasing Medicaid funding from the feds.

other ideas

Instead of injecting more money into the economy, some are saying we should be fixing the problems that led to a shaky economy in the first place - and to make sure we don't get hit by more tremors down the road. Prime among those problems is the sub-prime mortgage market, which could get worse this year.

how much are we talking here?

The final plan will cost about $152 billion this year.

who's paying?

Our future. The cost of the stimulus will go on the national debt tab.

the House/White House plan

The agreement House leaders and the president hatched in January would:

  • send $103 billion in checks to everyone who earned between $3,000 and $174,000 (for couples). Most would get $600 as a single person or $1,200 as a couple, with $300 extra per child,
  • give small businesses immediate tax perks for investing in equipment and give faster tax payoffs for all corporate investment (NYT explains),
  • let the Federal Housing Authority insure larger mortgages and help families switch over from defaulting mortgages - as well as let Fannie Mae and Freddie Mac back higher end mortgages.

The key to the compromise was what each side gave up: the president and the Republicans let go of demands make the Bush tax cuts permanent and gave into Democrat's wish to focus rebates on low and middle income Americans; Democrats, in turn, dropped demands to extend unemployment benefits and food stamps.

what Senate leaders wanted

Senate leaders came up with an alternate plan that would cut the same size rebate check to almost every American and extend unemployment benefits. Senators are also lining up amendments for their own preferred booster remedies. The main bill would:

  • give almost all taxpayers - as well as retirees and disabled vets - $500 checks for singles and $1000 for couples (the Senate bill doubles the income cap for who would receive a check)
  • lets the out-of-work pick up 13 more weeks of unemployment checs

Possible amendments would have added on: more funds for food stamps, low income heating support, highway resurfacing and renewable energy tax incentives.

the final package

What ultimately passed was the House bill - with added $300 checks for retired seniors and disabled vets who get at least $3,000 in benefits.

more boosters

Okay, we really don't understand how this works, but the Fed has also made $200 billion "available" to the credit markets to ease up on the growing credit crunch. (WP)

We didn't make all this up: We just stole it from NYT, NYT, WP, WP, WP, NYT, NYT, WP, WP, WP, WP, WP, WP.

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