Bill Statistics
The Middle Class Position
How They Voted
Grades
The Senate receives a grade of C for its support of the middle class on this piece of legislation.
61 Senators voted for the middle-class position; 37 voted against.
See how each member voted on this bill:
American Recovery and Reinvestment Act of 2009 - Senate Version
- Alternative minimum tax
- Child tax credit
- Civil Justice
- Consumers
- Corporate Accountability
- Corporate taxes
- Debt & Bankruptcy
- Earned income tax credit
- Economic stimulus
- Education
- Efficient technology
- Elementary school
- Energy & Environment
- Energy conservation
- Executive compensation
- Government Accountability
- Green buildings
- Green jobs
- Head Start
- Health Care
- High school
- Housing
- Income taxes
- Legal immunity
- Medicaid
- Middle school
- Mortgage lending
- No Child Left Behind
- Pell Grants
- Preschool
- Public infrastructure
- Renewable fuels
- Sales taxes
- Shareholder rights
- Tax cuts
- Tax Fairness
- Unemployment
- Workplace & Job Creation
01.26.2009 [House]
Rep. David Obey [D-WI]
The Senate version of the American Recovery and Reinvestment Act authorizes approximately $838 billion in new spending and tax cuts. The legislation seeks to stimulate the economy by preserving and creating jobs, assisting the unemployed and uninsured, and providing state budget relief while making investments in infrastructure, education, science, health, and energy efficiency.
The legislation increases and expands unemployment insurance at a cost of about $40 billion. The bill continues the extended unemployment benefits program, which currently offers up to 33 weeks of benefits, through the end of 2009, provides funds to increase the benefit by about $25 per week, and offers incentives for states to include in their benefits programs low-wage and part-time workers who are often excluded from unemployment insurance. The legislation temporarily suspends the taxation of unemployment benefits. In addition, the bill temporarily subsidizes COBRA, a federal program that allows unemployed individuals to receive health insurance coverage through their former employer’s health plan. This provision will permit many newly unemployed individuals retain health insurance benefits. The rate at which the federal government matches state Medicaid spending is temporarily increased at a cost of approximately $90 billion. The legislation also increases food stamp benefits, worth about $17 billion.
The American Recovery and Reinvestment Act contains many spending provisions related to education. It provides $12.4 billion in Title I funds to help disadvantaged students meet standards and $13.5 billion for the IDEA special education program, along with additional funds for educational technology, child care, and Head Start. Separately, the bill appropriates $39 billion to prevent cuts in state education services. The Pell Grant for low-income students to attend college is increased by $400 to $5,250 for the 2010-2011 academic year.
The legislation appropriates $27 billion for highways projects, $8.4 billion for transit and rail projects, additional funds for rail and other transportation investments, and money for clean water projects. The Act includes funds to modernize the electricity grid, to renovate and repair federal buildings for increased energy efficiency, to retrofit low-income housing, and to weatherize homes. Energy provisions also include block grants to state and local governments to increase energy efficiency and funds for renewable energy research.
Other spending provisions include $22 billion for health information technology to encourage medical providers to computerize records; $1.5 billion for homeless services; $7 billion to expand broadband services in underserved areas; funds for science research and facilities, the Temporary Assistance for Needy Families program, and for low-income disabled and elderly individuals; and $730 million in lending assistance and loan guarantees to encourage small businesses to make loans.
Additionally, the American Recovery and Reinvestment Act contains tax breaks for individuals and businesses. The Making Work Pay tax credit establishes a $500 refundable tax credit in 2009 and 2010 for working individuals that phases out at $70,000 (at $140,000 for joint filers who receive a $1,000 credit). Because the credit is refundable, households with no tax liability are eligible to receive a tax refund under the program. The American Opportunity education tax credit provides a maximum $2,500 annual tax credit for higher education in 2009 and 2010 (30% of the credit is refundable) that phases out at $80,000 for individuals ($160,000 for joint filers). The legislation also temporarily expands the Earned Income Tax Credit and the Child Tax Credit.
The bill creates a $15,000 nonrefundable tax credit for all homebuyers and permits a tax deduction for the interest and sales tax on new auto purchases that phases out at an income of $125,000 for single filers. The American Recovery and Reinvestment Act also raises the exemption for the Alternative Minimum Tax and expands the credits that are applicable to the tax.
Tax cuts for business include a carryback loss provision that allows companies to write off current losses against profits earned up to five years ago (instead of two years ago as is currently permitted). This provision excludes institutions that have received TARP funds. The legislation includes a bonus depreciation clause that permits tax breaks for capital expenditures made in 2009 and a separate tax break related to cancellation of debt. Another tax provision doubles the tax break for capital investments made by small businesses in 2009. The bill extends tax credits for production of renewable energy and increases credits for energy efficiency improvements made on existing homes and for renewable energy research and development.
The American Recovery and Reinvestment Act includes two measures designed to reduce foreclosures, along with changes to the HOPE for Homeowners mortgage modification program. The legislation instructs the Treasury Secretary to implement a plan to facilitate mortgage loan modifications and directs $50 billion in TARP funds for this purpose. A separate measure, without specific funding, permits the Treasury Secretary to make payments to mortgage services that modify loans and protects these servicers from legal action by investors.
The American Recovery and Reinvestment Act includes provisions encouraging expeditious use of funds appropriated in the bill. It also mandates that iron and steel used in projects authorized by the Act be produced in the United States, but this provision to be applied consistently with international trade agreements. A website will publish how funds are spent, on what contractors, and with what formula grant allocations.
Finally, the bill includes several provisions related to executive compensation. The Act prohibits officers, directors, and other employees of firms that receive TARP funds after the bill’s enactment from being paid more than the U.S. President ($400,000 a year) and creates a mechanism, with an enforcement provision, for the government to recapture excessive bonuses (over $100,000) paid to employees at firms whose preferred stock was bought by the government via TARP. The legislation also requires all recipients of TARP funds to meet executive compensation and corporate governance standards to be established by the Treasury Secretary, including limits on compensation, recovery of bonuses, prohibition of golden parachutes, and prohibition of executive bonuses. Additionally, the legislation mandates a nonbinding shareholder vote on executive compensation for institutions that have received TARP funds.
Middle Class Supports. Economic conditions are bleak. The Congressional Budget Office estimates that if the economy continues on its current course, both the length and depth of the current downturn will be the worst since the Great Depression. For middle-class Americans, this means job and wage cuts, loss of health insurance, and, simply, a daily struggle to keep up with everyday costs like mortgage payments and college tuition.
The Congressional Budget Office estimates that if current economic conditions persist the unemployment rate could reach as high as 9.2% by 2010. With 46 million Americans already uninsured, the Kaiser Family Foundation reckons that if unemployment averages just 7% in 2009 (the current rate is 7.2%), the number of uninsured will increase by 2.6 million with an additional 2.4 million individuals enrolled in Medicaid and SCHIP. Indeed, state governments are struggling to provide the increased services needed to keep the swelling ranks of unemployed, uninsured individuals from falling out of the middle class. But the current economic climate has left states with decreased revenue from income, sales, and property taxes: 45 states face budget shortfalls with combined budget gaps of $350 billion through 2011. To confront these gaping budget holes, more than 20 states have implemented or are considering cuts to health insurance programs; the same is true of K-12 and early education programs and of funds for public colleges and universities.
Beyond the decidedly dire short-term outlook, economic improvement is probably quite far off. Douglas Elmendorf, director of the Congressional Budget Office, has testified that “economic recovery is likely to be slow and protracted.” Thus, programs that address longer-term concerns – investment in infrastructure and green technology are two primary examples – are as important as an immediate, stimulative jolt to the economy.
The American Recovery and Reinvestment Act ties together measures designed to assist middle-class households struggling to make ends meet, provisions that will provide an immediate economic stimulus, and investment that can help set the stage for an economy built on energy efficiency and durable infrastructure. Economists generally agree that the legislation will save around 3 or 4 million jobs by 2010, while increasing economic output. Indeed, the Congressional Budget Office, Mark Zandi of Moody’s Economy.com, and White House economic advisers all project that the legislation will reduce the unemployment rate by around 2%. Extended unemployment insurance will allow 6.7 million people to collect benefits. Importantly, aid to state governments for Medicaid and education programs would shore up budget gaps and help prevent cuts to vital services.
While assisting those most at need during the economic downturn, extended unemployment insurance and state fiscal assistance also generate the most “bang for their buck” in terms of stimulus because they funnel money into the hands of the people most likely to spend it. Extended unemployment insurance generates an estimated $1.63 in economic activity for each dollar spent; aid to state governments generates $1.38. In contrast, though they act more quickly than spending measures, tax cuts generate less stimulus. The Making Work Pay, Child, and Earned Income tax credits will help keep more than 2.1 million Americans out of poverty and the American Opportunity credit will make 3.8 million more students eligible for a higher education tax break. These are important measures that will assist aspiring middle-class and middle-class Americans struggling to make ends meet. But the expansions are temporary and tax cuts, even when refundable and directed at the low-income individuals most likely to spend them, are less effective stimulus measures. Worst of all, though, are tax cuts for businesses like accelerated depreciation and carryback loss provisions that have little economic benefit.
Despite concern that the spending included in the American Recovery and Reinvestment Act will be delayed, perhaps a valid concern due to the legislation’s size and complexity, the Congressional Budget Office estimates that 78% of spending would occur between 2009 and 2010. Indeed, funds for investment in infrastructure and energy efficiency, though perhaps more complicated to spend, are a critical step in longer term economic recovery. Beyond its stimulative value – infrastructure spending’s “bang for the buck” is $1.59 – the United States desperately needs new infrastructure to compete in the global economy. The American Society of Civil Engineers estimates that $2.2 trillion in infrastructure spending is now necessary. The funding for infrastructure projects included in the legislation is a first step in addressing this deficiency. Similarly, spending on a modernized electricity grid, retrofitted low-income housing, and weatherized homes creates the framework for a future economy less reliant on fossil fuels and, indeed, based on green technology.
Requirements for application of TARP funds to foreclosure prevention and for limitations on executive compensation and bonuses are first steps in establishing the accountability that has been missing from the financial bailout. Still, the bill does not set forth a comprehensive plan to address the foreclosure crisis that includes a moratorium on foreclosures, a mechanism to require modification of mortgages, and a change to the bankruptcy code to permit modification of mortgages on primary residences.
“The most concerning cut [in the Senate version of the stimulus package] is the $40 billion cut to state aid, which represents nearly 40% of the total cuts…This cut in particular will reduce the bill’s effectiveness as an economic stimulus, condemn hundreds of thousands to unemployment, and help prolong the recession...Only federal aid to states can break the cycle of economic downturn—and the more aid, the less states will have to resort to recession-enhancing spending cuts. For this reason, aid to states is highly stimulative, providing $1.36 in economic benefit for every dollar in aid and 33% more effective than across-the-board tax cuts.”
– Ethan Pollack, Economic Policy Institute, 2/8/2009
"Contrary to what some critics say, the economic recovery package working its way through Congress by and large is focused on the task at hand, which is to provide a needed boost to an economy that is in the midst of a long and deep recession. Much of the criticism of the package reflects a misunderstanding of how stimulus works and why the measures in the package will be effective as stimulus. Ironically, these misunderstandings create the danger that Congress may cut back effective stimulative measures and replace them with other measures that would make the package less effective."
– Chad Stone, Chief Economist, Center on Budget and Policy Priorities, 2/5/2009
For all its benefits, the Senate version of the American Recovery and Reinvestment Act falls well short of the House proposal in significant ways and includes several provisions that will do little to help middle-class Americans. The Senate version includes only $39 billion in aid to struggling states to prevent cuts to education services, a cut that the Economic Policy Institute warns will lead to a longer and deeper recession. As described above, aid to struggling states is one of the best ways to stimulate the economy. The bill also omits $20 billion for school modernization, renovation, and repair that was included in the House text. Additionally, the Senate version includes only one of several important expansions of COBRA and Medicaid, incorporated in the House version, that would have kept 8.5 million individuals from losing insurance. As the unemployment rate rises, more and more middle-class households will find themselves not only jobless, but without health insurance. The Senate bill tilts more heavily toward tax cuts than the House bill and less effectively targets those tax breaks at the low-income households that both need the assistance and are most likely to spend the money. The Senate legislation also provides less money for Head Start, food stamps, and public transit.
Two tax credits are particularly poor stimulus. A $15,000 tax credit for new home purchases is available to people at all income levels, would cost $39 billion, and would have a very limited stimulative effect: the Center on Budget and Policy Priorities estimates that nine out of ten taxpayers eligible for the credit would have bought a home without it. Further, the credit would, in effect, prop up house prices, reinflating a housing bubble that was at the heart of the current financial crisis and encouraging reckless speculation. Another tax provision permitting deduction of interest and sales taxes on new car purchases would have a similarly limited stimulative effect.
In general, the inclusion of tax cuts for businesses in the American Recovery and Reinvestment Act might have been a deft political maneuver, but these provisions will do little for middle-class Americans. Indeed, one such tax break, accelerated depreciation, provides only $0.25 in stimulus for every dollar spent. Funds devoted to tax cuts for businesses would have been much better spent on mass transit, which was shortchanged both in general and in comparison to the funding provided for highway construction. Transit authorities are strapped for cash and cutting service even as ridership increases, so government funds would be put to immediate use, while spending on new transit projects and equipment – even as ambitious as high-speed rail – would provide a cost-effective alternative to car travel. At the same time, the American Recovery and Reinvestment Act involves numerous government agencies and even more government programs. Ensuring that spending provisions are carried out quickly and efficiently is key to the legislation’s success.
We recognize that there is a limit to what this stimulus package can and should attempt to accomplish. But we must be mindful that many of the measures included in the legislation make up – temporarily – for problems that have not been addressed in recent years. Modernization of unemployment insurance, health coverage for unemployed workers, infrastructure investment, and, indeed, investment in science and health technology should be the beginnings of a new policy regime that works to include more Americans in the middle class, not a passing reprieve in a time of economic gloom.