President Barrack Obama signed the final version of the $787 billion economic stimulus plan on Tuesday. The stimulus package’s objective to boost the U.S. out of recession, consists roughly of two-thirds spending and one-third tax cuts.
The House of Representatives originally asked for $820 billion, then the Senate upped it to $838 billion. After some back and forth negotiations cut it down to $789 billion, it was approved with a final touch of removing $ 2 billion. All the back and forth action, as well as the final outcome of the past few weeks, serves as a good trial run and a test for how well different government parties will cooperate in furthering Obama’s agenda.
According to the Congressional Budget Office, this new fiscal policy is meant to stimulate the economy over the next 10 years. The plan is to spend $198 billion for programs such as unemployment assistance, Social Security benefits, and Medicaid for low-income and disabled Americans.
Fully $308 billion will be spent on appropriations of different committees, including the nation’s school districts, funding for environmentally sensitive areas, and health research. The final spending of $281 billion will be on tax cuts.
Obama’s famous plan for a middle-income tax relief was reduced from $500 for individuals to $400 and $800 credit for families, down from the originally intended $1,000. Students will get $2,500 tuition tax credit and Social Security recipients will receive a check for $250 lowered from the original $300.
Without a doubt, the main intention of the 2009 stimulus package was to create jobs and promote spending. Obama argued that this bold plan should create 3 million new jobs. Many senators, however, felt that the package doesn’t do much to support that job plan.
The Republicans complained about a lack of negotiation and bipartisanship. At first, no Republican supported the package, and the chances of any progress looked grim. The second round of the stimulus plan in Congress picked up three Republicans — moderate Sens. Susan Collins, Maine; Olympia Snowe, Maine; and Arlen Specter, Pennsylvania.
These support votes were crucial: the bill passed the Senate on a slim vote of 60-38, the exact number needed for passage. The vote in the House on the stimulus plan was 246-183.
Sen. Mitch McConnell of Kentucky, a Republican minority leader who won the White House and control of Congress, summed up Republican sentiments towards the bill as, “Democrats have been making up for lost time with a government spending spree on the taxpayer credit card”, according to the New York Times.
The beginning of economic crisis was in the collapse of the housing market, it is this second issue that seeks action from the plan. Initially, the Senate proposed a $15,000 tax incentive for all home buyers. As this was a plan prone to corruption, the final version was limited to first-time home buyers, who are now qualified for a tax credit of up to $8,000.
The health care problem of many unemployed workers was solved with a law known as Cobra. This law allows the government to subsidize 60 percent of private health insurance for up to nine month after the loss of a job. The Medicaid coverage proposal for those who did not qualify for Cobra was eliminated from the package.
The President wanted to use the package to modernize the economy, health care and education while creating jobs. According to the New York Times, Obama argued that a $37 billion package should be used on advancing technology, such as broadband access and conversion of medical records to electric form, consequently helping students, lowering energy bills, and upgrading schools, roads and utilities.
Some economists argue that fiscal policy isn’t effective in combating a recession, and that monetary policy is far more effective. Monetary policy pushes the Federal Reserve to make more money available by lowering interest rates and increasing demand. The current interest rates, however, are as low as possible—almost at zero. The fiscal plan of action, in other words the stimulus package, relies on tax cuts and spending to jolt the economy back to life by increasing short-term aggregate demand.
The speedy manner in which this plan was passed was in large part due to the self-imposed deadline of the Democratic Party. Thinking and acting fast is the main characteristic of this administration; whether or not it is successful the United States will find out soon. Next up on the White House agenda is the $2.5 trillion rescue plan for the nation’s financial system, proposed by Timothy F. Geithner, the Secretary of the Treasury.