ARRA Details: Pros and Cons

What Did ARRA Really Do?

man spending ARRA tax cuts on yellow peppers
ARRA tax cuts gave everyone more money to spend on the everyday items that revitalized the economy. Photo: Steve Debenport/Getty Images

The American Recovery and Reinvestment Act (ARRA) ended the 2008 financial crisis and recession. President Bush's plan, TARP, helped large corporations.  Obama's Stimulus Plan put money into the pockets of American families and small businesses. Following are the details of each of ARRA's seven components.

1. Immediate Relief for Families

It stimulated demand by redirecting $260 billion in federal funding.

Families received tax cuts, tax credits, and unemployment benefits. Most of it was delivered in the first two years.

  • Cut taxes by $400 for individuals and $800 for families through reduction of withholding. That confused many people who expected checks like the Bush Tax Cuts.
  • A payment of an additional $250 each to recipients of Social Security, veterans pension and Supplemental Security Income (SSI) benefits.
  • $70 billion to extend the AMT tax shelter. It's usually extended each year by Congress.
  • Greater access to the child tax credit for the working poor and an expanded earned-income tax credit to families with three children.
  • A $2,500 college tuition tax credit for 2009 and 2010.
  • An $8,000 tax credit for first-time homebuyers in 2009 only. (It was later extended through April 2010.)
  • Deduction of sales tax on new car purchases through 2009 only.
  • Unemployment benefits were extended for another 33 weeks.
  • Suspension of taxes on the first $2,400 of unemployment benefits through 2009. 

2. Modernize Federal Infrastructure

  • $46 billion for transportation and mass transit projects.
  • $31 billion to modernize federal buildings.
  • $6 billion in water projects.

3. Increase Alternative Energy Production

  • $17 billion in renewable energy tax cuts.
  • $5 billion to weatherize homes.

4. Expand Health Care

  • $24 billion to subsidize 65% of COBRA premiums for up to 9 months for laid off workers.
  • $87 billion in matching funds for two years to help states pay for the additional Medicaid needs that usually occur in a recession.
  • $10 billion to National Institute for Health.
  • $17 billion to modernize health information technology systems.

5. Improve Education

  • $54 billion to school districts and states to pay for teacher salaries and educational programs.
  • $21 billion for school facility modernization and construction.
  • $17 billion to boost Pell Grants by increasing the maximum to $5,350 in 2009 and $5,550 in 2010.
  • $13 billion for Head Start.
  • $12 billion for special ed programs, including job training for those with disabilities.

6. Invest in Science Research and Technology

  • $10 billion to modernize science facilities and fund research jobs that investigate disease cures.
  • $4 billion to increase broadband infrastructure in rural and inner-city areas. That made their businesses more competitive.
  • $4 billion for physics and science research.

7. Help Small Businesses

Small businesses drive 70% of all new jobs.  ARRA allocated $54 billion to help small businesses with tax deductions, credits, and loan guarantees.

These included:

  • Increasing the deduction for machinery and equipment deduction, including SUVs, to $240,000.
  • Allowing a special depreciation deduction for 2008.
  • A capital gains tax cut for small business investors who hold their stock for more than five years.
  • Tax credits for small businesses that hire long-term unemployed veterans or students.
  • Increasing the SBA loan guarantee to 90% in the 7(a) loan program.
  • Eliminate fees on 504 economic development loans.
  • In the FY 2011 budget, an additional $64 billion in stimulus money was allocated to extend many of the ARRA programs. It added tax credits for any new hires, and increase the Small Business Administration loan limits from $3 million to 5$ million.

(Source: AP, "Stimulus Package on Track for Final Votes", February 12, 2009. Bloomberg, "Lawmakers Drop Broadband Tax Credit", February 13, 2009.

WSJ, "How It Adds Up", February 15, 2009. Guide to U.S. Government, Rosemary Peavler, "Economic Stimulus for Small Businesses.")

Pros and Cons of ARRA

The American Recovery and Reinvestment Act had something for everybody. But it was almost too complicated. Many people were unsure whether they, in fact, received a tax break. Polls showed that many others thought their taxes had increased instead of decreased. Small businesses complained that loan guarantees and tax deductions didn't help them. That's because the orders just weren't coming in. Others criticized the focus on education or helping low-income families. Some said that extended unemployment benefits removed the incentive to look for work.

But the success of ARRA is in the numbers. The recession ended three months after the Act was passed. Economic growth immediately improved: from shrinking a horrifying 5.4% in Q1 2009 to growing 1.3% by Q3 2009. Instead of losing more than 500,000 jobs a month, the economy added 2.4 million private sector and 1.7 million government jobs in the first 18 months after ARRA was passed.