H.R. 1: The American Recovery and Reinvestment Act of 2009

H.R. 1

The American Recovery and Reinvestment Act of 2009

Date
January 28, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

The American Recovery and Reinvestment Act is scheduled to be considered on the floor on Wednesday, January 28, 2009, likely under a structured rule. The House Committee on Rules is scheduled to meet and report the rule on Tuesday, January 27.

The legislation contains three distinct sections which were considered and reported last week by three committees. The Appropriations Committee reported the discretionary spending provisions of the bill by a party-line vote of 35-22. The Ways and Means Committee reported H.R. 598, containing the bill’s spending provisions, by a party-line vote of 23 to 14. The Energy and Commerce Committee reported H.R. 629, including, among other things, health care provisions for unemployed workers and increased Medicaid aid to States, by voice vote.

Bill Summary

The American Recovery and Reinvestment Act of 2009 is an omnibus spending bill containing $816 billion in new spending and tax provisions which the Democrat Majority has characterized as a "concerted effort to create and save 3 to 4 million jobs, jumpstart our economy, and begin the process of transforming it for the 21st century." The bill includes $524 billion in spending provisions—$355.9 billion in new discretionary spending for domestic programs and $169 billion primarily for mandatory spending—and $291.7 billion in tax provisions, which includes $79.9 billion in spending on refundable tax credits.

Discretionary Spending
The legislation’s spending portion contains $355.9 billion in discretionary domestic spending to expand existing programs throughout the federal government. Spending meant to stimulate the economy under this title includes funding for a wide variety of programs ranging from climate change research, federal building repair, the National Endowment for the Arts, the Federal Highway Administration, AmeriCorps, and nurse and physician training. The funds from this title are distributed to federal agencies and the State Stabilization Trust Fund.

Democrat leaders have repeatedly emphasized the need for the discretionary domestic spending in the legislation to be distributed in a timely manner in order to create jobs through government programs and federal works projects. Both President Obama and Speaker Pelosi have reiterated their intention to see that 75% of the spending is paid out within 18 months. However, the Congressional Budget Office (CBO) has determined that only $144.7 billion (40.7%) of the discretionary funds in the bill would be expended by the end of 2010. The CBO report also found that only a small amount of funds for many of the most high-profile infrastructure spending items in the Democrat bill—which were planned to save or create three million jobs over the next two years—will be paid-out by 2011. In fact, the majority of the discretionary spending in the bill will be expended after 2010.

Mandatory Spending
In addition to the $355.9 billion in new discretionary funding, the bill includes approximately $168 billion in new mandatory spending, which does not include $79.9 billion for refundable tax credits that CBO scores as direct spending. The majority of the mandatory spending in the legislation provides increased federal benefits for unemployed workers, including an extension of unemployment insurance (UI), Medicaid coverage for unemployed individuals, and federal subsidies to employers to cover former workers. The bill would provide an across-the-board increase of 4.9% for the federal share of Medicaid spending through the Federal Medical Assistance Percentage (FMAP) until December 31, 2010. The bill also includes increased spending for the Temporary Assistance to Needy Families (TANF) program. The bill would allow States to increase the number of individuals on their TANF welfare rolls without increasing the number of individuals required to be working.

While these individual provisions may have merit, the mandatory spending increases that are packed into the bill are focused on federal aid and are unlikely to jumpstart the economy. Instead, the majority of these provisions provide federal subsidies to states and federal assistance to unemployed individuals. Members may also be concerned that spending on government programs is seldom reduced and, though these mandatory spending increases are technically “temporary,” it may be very difficult to bring these programs back to their current funding levels.

Tax Provisions
The bill also includes $291.7 billion in tax provisions, which includes $79.9 billion in direct spending on refundable tax credits. As the centerpiece of these tax measures, the legislation creates a new temporary refundable tax credit of $500 for individuals and $1,000 for married couples filing jointly in 2009 and 2010. The bill would also expand eligibility for refundable earned income tax credits (EITC), expand the amount of the EITC for families, and make a portion of the Hope Scholarship tax credits refundable. In total, $171.5 billion of the bill’s tax provisions would go to programs based on refundable tax credits, which require the government to make direct payments to taxpayers if the credit is more than the a taxpayer owes in federal income taxes. The refundable spending, which is scored by CBO as direct spending, totals $79.9 billion over five years. Unlike long-term, growth-oriented tax cuts that have been offered by Republicans as an alternative to this plan, these refundable tax credits are more akin to increased spending through the tax code.

Possible Member Concerns
In the weeks since the Democrat stimulus plan began to take shape, many Members have expressed a growing concern that the spending, though massive, is poorly focused, redistributive, and untimely. Many Members may be concerned that the legislation will dramatically increase federal spending and the record federal deficit—which must be paid by American workers either through increased borrowing or tax hikes—and fail to stimulate any long-term, sustainable economic recovery.

The following is a non-exhaustive list of spending details and provisions in the bill that may concern Republican Members:

Record Deficit Spending
According to CBO, the federal deficit will rise to a record $1.2 trillion, or 8.3% of GDP, in 2009. Even without this massive bill, the deficit will be by far the highest on record nominally and as a percentage of GDP during peacetime, easily exceeding the previousrecord of 6% in 1983 and the highest New Deal level of 5.9% in 1934.

Spending Not Immediate
According to CBO, most of the $356 billion in discretionary spending provided will not actually be spent until after 2010. In fact, only 8.1% of the spending will take place in 2009.

Questionable Spending Examples
The stimulus spending plan includes funding for such questionable items: National Endowment for the Arts ($50 million), LIHEAP ($1 billion), the 2010 Census ($1 billion), Americorps ($200 million), Amtrak ($800 million), repairs at the Smithsonian ($150 million), NASA climate change research ($400 million), and ACORN ($10 million).

Cost Per Job
The President and Democratic leaders in Congress have indicated that the legislation will create or save over 3 million jobs in the next two years. If those projections are true this bill would require approximately $275,000 of taxpayer money for every job created or saved. Some Members may be believe that for $816 billion this package should create far more than 3 million jobs.

Cost Per Household
According the Ways and Means Committee Republicans, this legislation increases the national debt by $6,700 for every American household and spends enough money to give every person in the nation $2,700.

Funds Relatively Few Roads and Bridges
Despite calls by Democrats for increased infrastructure spending to create jobs, a relatively small share of the total $825 billion package is devoted to transportation infrastructure—$44 billion or 5.3% and only $30 billion or 3.6% for highway construction.

Unsustainable Spending Expectations
The Democrats maintain that all of the spending will expire after two years and will not be assumed to continue long-term. However, these short-term increases will create enormous pressure to maintain these higher spending levels and thus avoid any “cuts.” For instance, according to the House Appropriations Committee, the package creates 32 new programs, totaling $137 billion. Congress’ track record for sun-setting programs is not impressive.

Excludes Parochial Schools
Among the increases in “green schools” spending included in the stimulus package, is language restricting any funding provided under the bill from going to schools “in which a substantial portion of the functions of the facilities are subsumed in a religious mission”—effectively restricting any private or religious school from receiving any funding under the “green schools initiative” grants.

Healthcare for Fired CEOs
The bill provides a state option to cover unemployed workers through their Medicaid programs. The bill also states that “no income or resources test shall be applied” to any eligible unemployed workers, therefore fired CEOs could obtain free health care benefits from the federal government.

State Government Bailout
The legislation directs billions to State governments, including $87 billion in Medicaid spending and $79 billion for the State Fiscal Stabilization Fund. According to the liberal Center on Budget and Policy Priorities, the total budget deficit for the states collectively for the remainder of Fiscal Year 2009 is $43 billion. Given that the federal government’s Fiscal Year 2009 deficit is already projected at $1.186 trillion—or 27.5 times greater than the total State shortfall—it is hard to understand why the Democrats would choose to further exacerbate the federal deficit, especially since most states are subject to balanced budget requirements whereas the federal government is not.

Corporate Welfare
Much of the spending—roughly $13 billion—could be construed as corporate welfare, which inevitably distorts the free market as private firms attempt to align their business models with the availability of government subsidies.

Impractical Spending
President Obama’s incoming OMB Director, Peter Orszag issued a stern warning last year, that much of this $825 billion stimulus package will have little-to-no effect on the economy. Last year, while serving as the Director of CBO, Orszag stated that:

Practically speaking, however, public works involve long start-up lags. Large-scale construction projects of any type require years of planning and preparation. Even those that are “on the shelf” generally cannot be undertaken quickly enough to provide timely stimulus to the economy….Some of the candidates for public works, such as grant-funded initiatives to develop alternative energy sources, are totally impractical for countercyclical policy, regardless of whatever other merits they may have. In general, many if not most of these projects could end up making the economic situation worse because they would stimulate the economy at the time that expansion was already well under way.

Non-Stimulutive Tax Provisions
The bill provides $171 billion in refundable tax-credits. Unlike across the board tax cuts, these temporary tax credits send refund payments directly to individuals, even if they pay no taxes. These refunds do little to spur growth, create more jobs, or stimulate the economy and are more similar to new spending through tax policy than actual tax cuts.

Future Tax Increases
The increased debt caused by this legislation will almost certainly be used by Democrats as a rationale for raising taxes in the future rather than cutting the program funding that is "temporarily" increased by the bill.

Cost

According to the Congressional Budget Office (CBO) the bill includes $816 billion in new spending and tax provisions. The bill includes $524 billion in spending provisions over ten years. H.R. 1 includes $355.9 billion in new discretionary spending and $169 billion in mandatory spending. According to CBO, the bill also includes $291.7 billion in tax provisions, which includes $79.9 billion in spending on refundable tax credits that is scored as direct spending.