What Was Obama's Stimulus Package?

Did Obama's Stimulus Plan Work?

Obama economic stimulus act
Obama rallied the support needed to pass the stimulus package because the Dow had dropped to 6,594.44 in March, panicking lawmakers. Credit: Joe Raedle/Getty Images

The American Recovery and Reinvestment Act was President Obama's initial economic stimulus package. Congress approved the $787 billion plan in February 2009. The ARRA's purpose was to end the 2008 recession by spurring consumer spending and saving between 900,000 to 2.3 million jobs. Most important, it instilled the confidence needed to boost economic growth.  It also aimed to restore trust in the finance industry by limiting bonuses for senior executives in companies that received TARP funds.

(Sources: "Letter to Senator Grassley," Congressional Budget Office, March 2, 2009. Recovery.gov)

How It Worked

ARRA had three spending categories. It cut taxes by $288 billion. It spent $224 billion in extended unemployment benefits, education and health care. It created jobs by allocating $275 billion in federal contracts, grants, and loans.

Although it was a ten-year package, $720 billion, or 91.5 percent, was budgeted for the first three fiscal years. It allocated $185 billion in FY 2009, $400 billion in FY 2010 and $135 billion in FY 2011.

It did better than planned. By the end of FY 2009, $241.9 billion had been spent: $92.8 billion in tax relief, $86.5 billion in unemployment and other benefits and $62.6 billion in job creation grants. In the FY 2012 budget, additional funding was allocated to raise the total to $840 billion. By December 31, 2013, $816.3 billion had been spent: $290.7 billion in tax relief, $264.4 billion in benefits, and $261.2 billion in contracts, grants or loans.

(Source: Recovery.gov.)

Was It a Success?

Many critics pointed out that ARRA did not succeed because the economy contracted 2.8 percent in 2009. The Congressional Budget Office projected ARRA would stimulate GDP growth by 1.4 percent to 3.8 percent that year. But that did not mean GDP growth would be 1.4 percent - 3.8 percent.

It meant the economy would be that much better, even if it remained in recession.

In fact, the CBO projected the economy would contract 3 percent for 2009. That's because it had already contracted 5.4 percent the first quarter, and 0.5 percent in the second. The Dow had fallen to 6,594.44 on March 5, 2009. By Q4 2009, GDP was up 3.9 percent, and the Dow had risen to 10,428. By 2010, the economy expanded 2.5 percent. 

The economic stimulus bill was supposed to save 900,000-2.3 million jobs. As of October 30, 2009, it saved 640,329 jobs. (This is the most recent report. The Recovery Board stopped estimating job creation after that.)

Not all of that success was thanks to the Stimulus Package.  Expansive monetary policy and active emerging markets boosted global growth. But by March 2009, monetary policy had done all it could. It was evident more fiscal policy was needed. No doubt, the economic stimulus package inspired the confidence needed to turn the economy around. 

Once in office, Obama realized he needed to increase the fiscal stimulus from the $190 billion plan he proposed in his campaign.

Some components of his campaign plan, such as enacting a foreclosure moratorium, had already been implemented by Fannie Mae. Others, such as eliminating taxes on seniors making up to $50,000, were still part of Obama's economic agenda elsewhere.

Obama's biggest challenge was to create enough of a stimulus to soften the recession, but not big enough to raise further doubts about the ballooning U.S. debt. Unfortunately, the plan was blamed for doing both -- failing to reduce unemployment below 9 percent, and adding to the debt. Even so, the stimulus plan was not condemned as much as health care reform, Medicare, and Medicaid for the debt.

How Well Did Each of the 3 Components Work?

Obama's tax rebates were supposed to encourage consumer spending, but many experts doubted it. Why? The rebates showed up as less tax withholding. Unlike the Bush tax cuts, workers did not receive checks. As a result, most people weren't aware they got a tax rebate.

The Stimulus for Small Business helped create jobs, increased lending from the SBA and community banks and reduced capital gains taxes for small business investors. The aid helped, but many states were so underwater that their losses outweighed the Federal assistance.

The public works construction was probably the most well-publicized. Signs were posted wherever stimulus money was used to construct roads or public buildings. It was estimated to retain or add 3 million jobs, many of which were sorely needed in the construction industry. 

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