With Congress moving toward passage of an $800 billion-plus economic stimulus plan, big government is back.
The stimulus is bigger than the Pentagon’s entire budget. It’s more than the U.S. has spent on the war in Iraq. And its hundreds of provisions reach into almost every aspect of American life.
Not since the Great Depression has Congress set out to expand and redefine so dramatically the government’s role in the economy.
“The three-decade-long period where the default assumption was that government is the problem, not the solution, has clearly ended,” says William Galston of the Brookings Institution.
If the stimulus plan succeeds, it’s likely to mean a larger, more activist government for years to come. If it is judged a failure — whether because the economic crisis persists or the public becomes disenchanted — the idea of government as an active player in national life could be discredited anew.
It remains a challenge just to understand what is in the plan. The version passed by the House last week ran 647 pages; the Senate version, which may come to a vote this week, will likely be longer.
Here is a review of some of the basic elements, based primarily on the House bill:
Jobs
In this area, the Obama administration and Democrats are following a popular theory: The best offense is a good defense. Spending and tax cuts are designed to discourage job elimination and encourage job growth.
Aid to states could allow them to avoid cutting back services and laying off workers to balance budgets. Money spent on highway and other infrastructure projects could open up jobs for construction workers and others idled by the housing crash.
Obama’s advisers calculated the stimulus plan would create 3.7 million jobs. Simon Johnson, a former chief economist for the International Monetary Fund, said the projection might be overly optimistic. “That’s not a criticism of the stimulus,” said Johnson. “It just means you shouldn’t expect miracles.”
The Congressional Budget Office estimates up to 3.6 million jobs would be created or saved.
Tax cuts
One of the big goals for the stimulus is to get consumers spending again. So the bill tries to put most of the tax cuts in the hands of people who are likely to spend whatever they have — low- and middle-income workers.
This year and next, the stimulus provides a $500 credit for individuals ($1,000 for couples) against their income and payroll taxes. The credit begins shrinking for individuals who make more than $75,000 a year (couples with more than $150,000). Individuals making more than $100,000 a year ($200,000 for couples) would get nothing.
The bill also increases by $7,500 the tax credit for first-time home buyers, if they make less than $75,000 a year. It provides a new tax credit for up to $2,500 in college tuition and related expenses for people earning less than $80,000 a year.
And it would temporarily increase the earned income tax credit for the working poor and widen eligibility.
But Edward Leamer, director of the UCLA Anderson Forecast, doubts many consumers will spend the money. He noted that most of the approximately $96 billion in tax rebate checks sent out as part of last year’s economic stimulus — 119 million people got an average of about $800 — was saved or used to pay bills.
Infrastructure
A centerpiece of the House bill is tens of billions for ready-to-go infrastructure projects, from new roads to school repairs.
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“For years, state departments of transportation and transit agencies around the country have said, ‘Give us the money. … We can get things going.’ Well, here is their opportunity,” said Rep. James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee.
In addition to the $30 billion for highway and bridge construction and maintenance, the bill provides $20 billion for school projects, from repairs to projects such as installing solar roofs. Among other provisions: $3 billion for airport improvements; $2.5 billion for new commuter or other light rail systems; $2 billion to modernize existing transit systems; $1.1 billion to improve intercity passenger rail service.
The measure also provides $4.5 billion to the Army Corps of Engineers for “environmental restoration, flood protection, hydropower, and navigation infrastructure critical to the economy”; $3.1 billion for infrastructure projects on federal lands; and $1.5 billion to make low-income housing using green technologies.
Health care
The stimulus package offers the most direct benefits to Americans who have lost their jobs and their health insurance in the downturn, and to those already receiving public assistance.
Roughly 3.5 million Americans who lose their jobs would be able to receive unemployment benefits for 59 weeks, instead of 26 weeks. And 20 million people would see a $25-a-week increase in their aid checks; the average weekly benefit is now $200.
The government also would provide $7.5 billion more to help states assist unemployed workers who otherwise might not have qualified for aid.
The bill would provide an extra month’s check — about $450 — for some 7.5 million poor and elderly disabled people who rely on Supplemental Security Income. Couples would get another $630.
An estimated 8.5 million Americans would get help keeping their health insurance after losing their jobs.
The so-called COBRA law allows people to retain employer-based health insurance for 18 months if they pay the premiums. That’s so expensive — often more than $1,000 a month — that relatively few people do it. The stimulus would commit the government to paying 65 percent of these premiums.
House lawmakers also want to give states the option of enrolling recently laid-off workers in Medicaid, the state-federal health insurance program usually reserved for the poor.
Millions who already rely on Medicaid could be spared cuts in services thanks to $87 billion in emergency aid to states, many of which are scaling back benefits to balance budgets strained by the economic downturn.
Energy
Nearly $100 billion in spending and tax breaks seeks to encourage use of “greener” energy — and less consumption overall.
Almost a third of the money is tagged for efficiency measures.
There’s $1 billion in low-income energy assistance and hundreds of millions apiece to buy electric and hybrid cars for government fleets and to encourage the purchase of high-efficiency home appliances.
Longer term, the plan includes $11 billion for the so-called “smart grid” technology that helps reduce electric bills and demands on local power supplies.
Another $8 billion would help fund construction of thousands of miles of new electric lines, which could make more wind or solar energy available to more of the country.
Advocates say the energy spending would create jobs, lower energy costs for many consumers and serve, in the advocates’ words, as a “down payment” on Obama’s grander plans to push the nation toward renewable energy.
Obama: Come on over
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