ARRA, Its Details, With Pros and Cons
What Did ARRA Really Do?
The American Recovery and Reinvestment Act of 2009 was a fiscal stimulus signed by President Barack Obama on February 17, 2009. It ended the Great Recession in June 2009.
The act's goal was to put $787 billion into the pockets of American families and small businesses. That would boost demand and instill confidence. It was a necessary follow-up to President George W. Bush's 2008 plan, the Troubled Asset Recovery Program. TARP ended the 2008 financial crisis by bailing out large banks.
In 2015, the Congressional Budget Office reported that Congress added to ARRA spending in subsequent budgets. It raised the total cost to $840 billion. Most of its impact occurred by 2014.
- ARRA ended the 2008 recession and increased employment in the years after.
- ARRA mandated government spending, tax cuts, and loan guarantees to jumpstart the ailing economy.
- It targeted financial relief for families, infrastructure, alternative energy sourcing, health care, education, small businesses, and scientific research and development.
ARRA had seven components. Here are the details of each.
Immediate Relief for Families
ARRA stimulated demand by sending $260 billion to families. They received the funds through tax cuts, tax credits, and unemployment benefits. Most of the funds were delivered in the first two years.
Here are the specifics:
- Cut taxes by $400 for individuals and $800 for families through reduction of withholding tax. That confused many people who expected stimulus checks like the Bush tax cuts.
- A payment of an additional $250 each to recipients of Social Security, veterans' pensions or Supplemental Security Income benefits.
- $70 billion to extend the Alternative Minimum Tax shelter. Congress extends it each year.
- 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. This was later extended through April 2010.
- A deduction of sales tax on new car purchases through 2009 only.
- Unemployment benefits were extended for another 33 weeks.
- A suspension of taxes on the first $2,400 of unemployment benefits through 2009.
Modernized Federal Infrastructure
ARRA created jobs by funding shovel-ready public works projects.
- $48 billion for transportation and mass transit projects
- $31 billion to modernize federal buildings
- $6 billion in water projects
This is the most cost-efficient way to create jobs. One billion dollars spent on public works created 19,795 jobs according to a UMass/Amherst study.
Increase Alternative Energy Production
This funding jump-started the alternative energy industry in America. It demonstrated that the federal government supported clean energy.
- $17 billion in renewable energy tax cuts
- $5 billion to weatherize homes
Expanded Health Care
This component subsidized the greater health care costs that were created by the 2008 recession.
ARRA required hospitals and doctors to computerize medical records.
That simplified the exchange of patient medical information, such as tests, among doctors. Computerized medical records facilitated the 2010 Affordable Care Act.
Here's what ARRA spent on health care:
- $24 billion to subsidize 65% of the Consolidated Omnibus Budget Reconciliation Act premiums for up to nine months for laid-off workers
- $87 billion in matching funds for two years to help states pay for the additional Medicaid needs that occur in a recession
- $10 billion to National Institute for Health
- $17 billion to modernize health information technology systems
Here's what ARRA spent on education:
- $53.6 billion for 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
- $5 billion for Head Start
- $12 billion for special education programs, including job training for those with disabilities
Education spending is the second-best way to create jobs, according to the UMass study. One billion in federal spending creates 17,687 jobs.
Invested in Science Research and Technology
Funding broadband infrastructure in rural areas also helped pave the way for computerized health records needed for the ACA.
- $10 billion to modernize science facilities and fund research jobs that investigate disease cures
- $4.7 billion to increase broadband infrastructure in rural and inner-city areas.
- $3 billion for physics and science research
Helped Small Businesses
Small businesses drive 70% of all new jobs. ARRA allocated $730 million to help small businesses with tax deductions, credits, and loan guarantees. These included:
- Increased the deduction for machinery and equipment, including SUVs, to $250,000
- Allowed a special depreciation deduction for 2008
- Cut capital gains taxes for small business investors who hold their stock for more than five years
- Tax credits for small businesses that hired long-term unemployed veterans or students
- Increased the SBA loan guarantee to 90% in the 7(a) loan program
- Eliminated fees on 504 economic development loans
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.
The success of ARRA is in the numbers.
The recession ended in June 2009, four months after Congress passed the Act. Economic growth immediately improved. It expanded 1.7% in the third quarter of 2009 after shrinking 6.7% in Q1 2009. In the first 18 months after ARRA passed, the economy added 2.4 million private sector and 1.7 million government jobs. That was after losing more than 500,000 jobs a month during the recession.
In 2009, the Council of Economic Advisers predicted that ARRA would increase employment by 6.8 million full-time jobs by the end of 2012. In 2015, the CBO estimated the stimulus had actually created between 2 million and 10.9 million jobs between 2009 and 2012. Most of the increase occurred by 2011.
ARRA Compared to CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was a $2 trillion stimulus package passed on March 27, 2020. a subsequent. Like ARRA, Congress provided financial aid to families and businesses.
Unlike ARRA, it was in response to the COVID-19 pandemic. The government had recommended businesses shut down and residents stay at home to prevent an unmanageable spread of the new coronavirus.
Unlike ARRA, the 2020 act was not in response to a recession. Instead, it was in anticipation of one. Here's what ARRA allocated compared to CARES:
|Expanded Unemployment||Extension only||$260B|
|Small Business Loans||$730B||$377B|
|Health Care Providers||$128B||$127B|
|State and Local Governments||$0||$150B|