According to a report made by the White House, President Barrack's $787 billion stimulus worked towards preventing the Great Depression while in the due course preserving two million jobs. The $787 billion economic stimulus package was endorsed by the Congress in February, 2009. Generally, the plan was aimed at jumpstarting economic growth and preserve 900,000 to 2.3 million jobs. The economic stimulus bill allocated funds as stated below:
a) $288 billion was allocated in tax cut.
b) $224 billion was allocated in extended unemployment benefits, health care and education.
c) $275 billion allocated for job creation by applying federal contracts, loans, and grants.
d) Even though the economic stimulus package was to be spent for over ten years it was rather budgeted for the first three fiscal years as follow: $185 billion in 2009, $400 billion in 2010 and $135 billion in 2011.
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e) The plan worked appropriately that by October 30, 2009, a total of more than $241.9 billion had been spent as follow: $92.8 billion in tax relief, $86.5 billion on unemployment and other related benefits and $62.6 billion in job creation grants. By October 8, 2010, the program had spent $554.4 billion: $243.4 billion in tax relief, $163.2 billion in entitlements and $147.8 billion in contracts, grants and loans.
f) The CBO projected that these funds were likely to grow as a result of GPD growth by 1.4% to 3.8% by the end of 2009. Although, this did not imply that the GPD growth was positive but in fact the CBO forecast the economy would be down by 3% for the year 2009.
g) The economic stimulus bill was to save 900,000 to 2.3 million jobs of which it only managed to save a total of 640,329 jobs by October 30, 2009 (Carol, 232).
Reasons for Creating the Economic Stimulus Package
- The major purpose of the economic stimulus package was to prevent re-emergence of the panic that gripped most investors in 2008. It therefore aimed at restoring the trust in the monetary industry through further limiting the bonuses of the senior executives for firms that were entitled to TARP funds.
- Obama increased the spending from the $190 billion plan he proposed in his campaign, after realizing that dramatic aggressive was to be in place in order to stem the economic crisis. Some of the components of his campaign plan, like enactment of foreclosure moratorium which has already been executed by Fannie Mae. In other areas, Obama plans to continue with elimination of taxes for seniors making up to $50,000 billion.
- One of the biggest challenges of Obama was to create enough of economic stimulus in order to soften the recession, but rather not big enough to create further doubts concerning expanding Federal Debt which now stands at more than $13 trillion.
How Does the Plan Work?
Obama's tax rebates were a tool that up to present date is usually aimed at encouraging client spending even though it is filled with doubts. The stimuli for small entrepreneurs aided in creation of jobs. This is because the state aid helps in keeping them from having to either raise property taxes or even cut the required services that are likely to save jobs. And in the due course the public works construction retains a total of 3 million jobs. It in turn also lowers the transportation costs for consumers. It is therefore equally vital to remove all the incentives once danger is over to reduce the deficit and in turn avoid future inflation (Carol, 178).
According to economic statistics suggests that recession has ended, a new debate is heating up over the role of the big United States stimulus package. The question that goes in everyone's mind is that did the economic stimulus help in speeding the economic revival or not? Several conclusions are being made but they are rather contradictory.
The economic stimulus package had a substantially optimistic impact on the growth of real gross domestic product (GPD) and also on employment in the second and third quarters. This was in accordance to President Obama's Council of Economic Advisers (CEA) concluded in a September 10, report.
According to some people like Brian Riedl who is an economist conservative Heritage Foundation in Washington, it did not work. And he therefore says that all the process is a bit premature since it takes time for $787 billion to wend its way through the economy, and it also requires much time to track such a huge sum of money. 4/5 of the Stimulus money has not yet been spent yet, this is in accordance to the reports made by CEA report that estimates occur by large but hard numbers. It is therefore advisable to be regarded as preliminary and be understood as a subject to considerable uncertainty, because still it is not easy to pump $151 billion into the economy and be unable to some growth (Carol, 256).
For example, the bill provided fiscal relief to most states that are being faced with large budget shortfalls. The economic stimulus package thus averted in some degree layoffs of state and municipal workers. According to the White House agency, it is clear that such outlays played a key role in altering the economic trajectory. It therefore suggested that it added approximately 2.3 % points to real GPD growth in the second quarter and is most likely to improve even further and record growth in the third quarter. It also ended between 600,000 and 1.1 million jobs that would not have taken place without the stimulus (Sumru, 148).
Mr. Brian Riedl counters all the above by saying that the rescue money comes from money from the taxpayers or other parts of the economy and therefore it has no positive impact on the economy. This basically adds up to totally zero-sum. One of the factors that is likely to determine the effects of the stimulus which economists refer to as "Multiplier Effect." If at all the taxpayers' money is spent on construction of a bridge then the builder of the bridge spends a share of that money on either clothes or TV, then this gives the clothing and electronics retailers enough money to spend as they would prefer (David, 3).
In case the stimulus package works well then it is clear that the money will turn over several times. And in case it doesn't then the government money is likely to be vigor. According to Benjamin Friedman from the University of Economists, believe that the stimulus was designed poorly but rather not very large in terms of GPD and therefore its impact on the economy is likely to be modest. Yet, the package stands as the large stimulus effort in the United States of America's history, at 2% of 2009 GPD. Nonetheless, it appears larger than 20 national stimulus packages passed this year like Britain's (1.5% of GPD), Italy's (0.1%), Canada's (1.7%). the United States' efforts is only topped by nations such as Russia's (2.9%), China's (2.6%), Japan's (2.4%), and South Korea's (3%). Generally in the United States, 75% of the package is supposed to be deployed in the first 18 months and that implies that it has to be done before the end of 2010. This is supposed to be witnessed in the next few months.
According to Ann Vorce, an Economist at the Committee For A responsible Federal Budget, one of the bipartisan pushing for taming the budget deficit says that, it is still too early to make a quasi-final judgment concerning whether the package provided a good boost to the economy. However she figures out the cost of stimulus action as being lower than the cost of inaction would have been (Sumru, 103).
Stimulus package worked
Stimulus package worked to some extent. Why am I Saying so, a total of 95% of families received a tax break in the stimulus. Maybe people are not just willing to appreciate all that has happened, but it is true that they did get the tax break. Economists say that, people should not anticipate massive hemorrhaging of jobs to robust job growth without passing through such a period, where GPD recovers first and then diminished job losses precede the net gains that are expected during the springs. However, according to a report made by Joe Bidden, the Recovery Act had obligated $334 billion spending by the end of January, where a total of $179 billion of the total amount was spent and in so doing it also provided a tax relief of $119 billion.
The most fascinating aspect concerning the stimulus problem is generally based on its design and its implementation process. In contradiction, the very things that made the stimulus appear more efficient economically may have made it less popular in term of political perspective. For example, since research has indicated lump-sum tax refunds gets hoarded rather than being spent and therefore the government thought it was wise not to give people their tax cuts all at once because it felt that it was wise to give little refunding each paycheck. The tactics were really victorious at increasing the demands of the consumers but also it had a huge political cost since many voters hardly realized that they were receiving tax cut. Likewise, a key part of the stimulus was the billions of dollars that went to the state government. This was generally an important tool that helped the states to avoid layoffs and spending cuts but in the political outlook, it did not receive much notice since it was the dog that was unable to bark - saving jobs just isn't a conspicuous as creating jobs. The act of extending unemployment benefits was also one of the most excellent uses of stimulus funds, because it appears that the money is usually spent immediately. But the unemployed are the ones who paid so much attention to this (Sumru, 111).
It is also important to note that the stimulus also blackloaded because only a third was spent in the first year. This in turn reduced wastes because there was much time to vet projects, and people were ensured that it is likely to be kept flowing into2010 and thus reducing the risks of double-dip recession. The stimulus was made potent by such a period when the economy was in dire straits, leaving voters without the impression that the plan did not work. More subtly, while the plan is likely to end up having a trans formative impact on several issues such as clean-energy industry, broadband access and the national power grid, it becomes difficult for voters to gather concrete evidence concerning what stimulus has done (David, 6).
Fantastic as it may appear, a less well-designed stimulus might have been more fashionable and that might have made it easier for President Barrack Obama to sell the people entitled to vote on his new proposals. But given the scope and depth of recession, it is likely that any kind of stimulus was likely to generate into political albatross. As one of the professors of University of Pennsylvania who studied the role of psychology in public policy said that "if you take action and things go wrong, you are often held responsible than if you did nothing, even in cases when failure to act may cause disastrous outcomes." It is evident that by pushing through the stimulus plan, the Administration tied itself to the fate of the economy more tightly than if it had done nothing (David, 5).