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Latest news:
The government continues releasing stimulus funds to states and individuals, among others:
President Obama announces the release of $27 billion of Highway Infrastructure Funds: states will receive the funds and will have 120 days to allocate those funds - each state has a large degree of freedom on what projects to fund. The $27 billion constitute the majority of the funds destined for Highway Infrastructure spending under the stimulus act. Check out the distribution of Highway Infrastructure Funds by State.
The economy in freefall in the fourth quarter of 2008: the Department of Commerce published on Friday its revised estimates of economic growth at the end of last year showing a depressing 6.3% contraction in GDP. The first quarter of 2009 is not expected to be much better.
Manufacturing improved slightly in March, and spending was up, slightly, for the second month in a row: the Institute for Supply Management's Factory Index showed a reading of 36.3, which while still indicating a strong recession - readings below 50 indicate a contraction - was better than the 35.8 reading in February, and better than expectations. The Commerce Department announced that spending increased by 0.2% in March, and the savings rate was 4.1% indicating a continuation of the strong move of Americans towards more thrifty ways.
A handful of Republican Governors are not taking all the stimulus money directed to their states: While most governors Republican and Democrat alike are making full use of the funds, the Governors of South Carolina, Alaska and Louisiana have announced that they will foresake some of the funds. While much of the criticism of the stimulus is generic in the tax-cuts versus spending philosophical debate, there are a couple of aspects with regards to continuation of unemployment benefits that trouble them - in particular, they claim that taking the money will require them to augment the class of workers eligible for unemployment benefits which in the future will increase state spending.
Congress passed the $787.2 billion American Recovery and Reinvestment Act of 2009 (H.R. 1), also known as the stimulus plan, on February 13, 2009 in the evening. President Obama signed the bill into law on Tuesday, February 17. The final bill was close in size to what the administration had asked for though some of its priorities, such as school construction funds, were eliminated. The vote was cast along partisan lines - no House Republican voted for it, and only 3 GOP Senators supported it. The bill calls for $308 billion in discretionary spending with the rest spent between tax incentives and direct aid to states and individuals. You can read the entire bill at the following link:
American Recovery and Reinvestment Act - H.R. 1 - Final Bill
The following two documents provide easy to read explanations on many of the provisions of the bill:
Joint Explanatory Statement for Division A: An explanation of the differences for the appropriations section
Joint Explanatory Statement for Division B: An explanation of the differences for the tax and state aid section
The American Recovery and Reinvestment Plan is one President Obama's main weapon to jump-start the economy and prevent a much deeper and longer recession; the current downturn started in December 2007 making it already one of the longest since the Great Depression, and it has caused the second largest number of job losses in the history of the US in a single year (in absolute, but not relative numbers).
Through a combination of tax cuts, direct investments in a variety of sectors including infrastructure, energy, science and education and help to the unemployed and to the states, Congress and the President are looking to alleviate if not stop the decline in economic activity. As of January 2009, the economy has lost 3.6 million jobs, which have been shed across all sectors of the economy except for government and healthcare. The plan, and hope, is that the package, in addition to making Keynes proud, will be successful in reducing the number of future layoff and in creating new jobs to replace those already lost.
The history of the bill starts with President Obama introducing it in early January. Democrats in the House of Representatives passed the "American Recovery and Reinvestment Act of 2009" on January 29th, 2009 (the full text of the original H.R. 1 bill is found here, but its companion document is more readable if you are not interested in the minutia). Senate Democrats and a few Republicans reached a consensus on a somewhat less ambitious version of the bill on February 6, 2009 (that version is found here). An amended version as discussed by the Senate on February 7th, is found here. The compromise Senate bill totaled $827 billion - cutting some of the programs for school construction, and public health and principally reducing aid to states. The final House-Senate compromise bill brought back some of these programs, not all, and reduce some of the tax incentive portions of the Senate bill.
With the bill now passed, our goal is to track its success with respect to job creation and in reviving the economy. We will investigate and point out where jobs are being created and lost and how to take advantage of the opportunities being presented by this massive fiscal stimulus. To start the journey, it is worth taking a look at the highlights of the recently passed plan.
(1) To preserve and create jobs and promote economic recovery.
(2) To assist those most impacted by the recession.
(3) To provide investments needed to increase economic efficiency by spurring technological advances in science and health.
(4) To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits.
(5) To stabilize State and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases.
Of the $787.2 billion stimulus, $287 billion will come in the form of tax cuts and tax breaks for individuals and businesses, $308 billion in discretionary spending, and $192 billion for direct aid spending to states and programs serving individuals in need (e.g. Medicaid, unemployment assistance, health insurance subsidies).
On the tax cut and break front, for individuals the bill introduces a "Making Work Pay" tax credit, it provides relief to middle-class earners affected by the Alternative Minimum Tax (AMT), it expand the Earned Income Tax Credit (EITC), it increases the refundable portion of the child credit, it provides educational and home and vehicle buyer tax-credits. The total costs for these items are approximately $233 billion as estimated by the Congressional Budget Office (CBO) in its Cost Estimate for the conference agreement for H.R. 1.
The formula for the "Making Work Pay" refundable income tax credit is rather simple, anybody paying taxes (this includes those that only pay payroll taxes - social security, and medicare) will receive $400 in tax credits, and married couples $800 - there are income restrictions.
Qualifications for the Earned Income Tax Credit (EITC) have been expanded so that more people could qualify for these credits, and increases the credit for families with three or more children.
For people for whom the child tax credit ($1,000 per child) exceeds their tax liability, the taxpayer can claim a refundable credit equal to 15% of their income in excess of $3,000 for the years 2009 and 2010 (the regular threshold is $12,550.
In addition, retired individuals, people receiving Supplemental Security Income, veterans and railroad retirees will receive a one time payment of $250 ($500 for married couples).
AMT relief comes in the form of higher deductibles: $70,950 for married individuals filing jointly, $46,700 for single people, and $35,475 for married people filing separately.
First-time homebuyers are allowed a tax credit equal to the lesser of $8,000 ($4,000 for a married individual filing separately) or 10 percent of the purchase price of the principal residence. In addition, first-time homebuyers do not need to repay the credit. This is valid as long as the home is purchased between 1/1/09 and 12/1/09.
The bill provides for educational tax credits for tuition expenses.
The following tables provide an illustration of the tax provisions under the "Make Work Pay" provision, and the EITC provision - (Please note: the paragraphs above and the tables are for illustration only and DO NOT constitute tax advice - please consult a tax expert on the matter)
| Making Work Pay - Refundable Income Tax Credit |
Single Return |
Joint Return | |
| The lesser of |
6.2% | of gross income, or |
|
|
|
$400 |
$800 |
|
| For gross incomes up to | $75,000 | $150,000 |
|
| Above that it will be reduced by 2% of the excess, so the maximum adjusted gross income before the tax credit disappears is: |
$95,000 |
$190,000 |
Source: H.R. 1 Bill
| Earned Income Tax Credit |
Maximum EITC |
Min Gross Income for Maximum Amount |
Max Gross Income for Maximum Amount |
Phase Out Income |
| Single taxpayer with no qualifying children (7.65% of earnings up to Min Gross Income Amount) | $457 |
$5,970 |
$7,470 |
$13,444 |
| Joint filing taxpayer with no qualifying children ( 7.65% of earnings up to Min Gross Income Amount) | $457 |
5,970 |
$12,470 |
$18,444 |
| Single taxpayer with 1 qualifying child(34% of earnings up to Min Gross Income Amount) | $3,043
| $8,950 |
$16,420 |
$35,463 |
| Joint filing taxpayer with 1 qualifying child (34% of earnings up to Min Gross Income Amount) | $3,043 |
$8,950 |
$21,420 |
$40,463 |
| Single taxpayer with 2 qualifying children (40% of earnings up to Min Gross Income Amount) | $5,028 |
$12,750 |
$16,420 |
$40,295 |
| Joint filing taxpayer with 2 qualifying children (40% of earnings up to Min Gross Income Amount) | $5,028 |
$12,750 |
$21,420 |
$45,295 |
| Single taxpayer with 3 or more qualifying children (45% of earnings up to Min Gross Income Amount) | $5,657 |
$12,750 |
$26,420 |
$53,279 |
| Joint filing taxpayer with 3 or more qualifying children (45% of earnings up to Min Gross Income Amount) | $5,657 |
$12,570 |
$31,420 |
$58,279 |
Source: H.R. 1 Bill; IMPORTANT NOTE: tax credits are valid for tax years 2009 and 2010. Tables are for illustration purposes only - they do NOT constitute tax advice - please consult a tax expert
In addition to tax breaks individuals will benefit directly from federal aid to fund unemployment benefits and other programs that assist struggling families at the tune of $57.2 billion, and health insurance assistance costing $25 billion. The over $90 billion in State fiscal relief are in its majority targeted towards providing Medicaid relief as the needs for those programs increase and state revenues decrease.
Some interesting and novel proposal included among the tax incentives/breaks and the direct aid funding include:
Subsidy for laid off workers (between 9/1/08 and 1/1/10) that are eligible for COBRA health insurance benefits. The government will subsidize 65% of the premium for 9 months at a cost of $25 billion;
Small businesses (defined as revenue below $15 million) will be able to carry back Net Operating Losses (NOL) incurred in 2008 or 2009 for up to 5 years;
$14 billion in tax incentives for production and use of renewable energy sources, and $4 billion in tax incentives for making buildings and residences more energy efficient;
Close to $17 billion in incentives to doctors, hospitals and clinics (Medicare and Medicaid providers) to adopt Electronic Health Records - these investment is expected to reduce substantially the administrative costs of providing health care and ultimately result in better care for patients.
Quick use of the funds is one of the priorities for Congress, as such one of the goals is to invest 50% of the money in projects that will have a start date on no more than 120 days from the time when the Act is enacted.
To make sure that the funds are spent in accordance to government rules and regulations and are directed towards the uses specified by the Act, Congress is calling for over $300 million in additional funds to be allocated to the Inspector General offices of federal departments that will be disbursing ARRA funds and to other agencies in charge of overseeing these funds. In addition, there will be a seven person Accountability and Transparency Board that will oversee the Federal funds disbursed because of this Act.
You'll be happy to know that the Act forbids the use of any funds for gambling establishments, aquariums, zoos, golf courses and swimming pools.
Buy America language: the House thought it appropriate to add a provision that any iron or steel purchased using funds from the stimulus be produced in the United States - there are some exceptions if using US iron or steel increases the price over 25% and others. The provision makes its (ugly) appearance on the final version of the bill as well - there is language on the bill that safeguards our international treaties, so it should have no impact on that.
All grants calls and awards are to be published online at Recovery.gov - the site will contain information about how the funds will be allocated across the different states and localities.
Congress' intention is that most funds be disbursed under "fixed-price" contracts. For the un-initiated, a fixed-price contract calls for the contractor to be paid a pre-determined price for the goods and services provided - if in the delivery of the services the costs incurred are higher than initially estimated, the loss is the contractor's - likewise, if the costs are lower, the benefits go to the contractor as well. In other contracting modalities such as "time & materials", and "cost plus", the risk for cost overruns is carried by the government (as are the benefits).
States will receive significant support: The final compromise provides states with $54 billion in discretionary spending geared in large part towards financing spending on education. In addition, to these funds, Congress will support states by providing fiscal relief estimated by the CBO at over $94 billion - Medicaid support costs make up the bulk of that spending.
Information on this page is provided courtesy of TrackTheStimulus.com. More detailed information on the stimulus can be found on that site. All rights reserved.