A Second Stimulus Package

Topics: Unemployment, Taxation, Tax Pages: 7 (2713 words) Published: May 4, 2011
The main purpose of the economic stimulus package was to prevent the re-emergence of the panic that gripped investors in 2008. It also aimed to restore trust in the finance industry by further limiting bonuses for senior executives for companies that received TARP funds (Recovery.gov). The $787 billion economic stimulus package was approved by Congress in February, 2009. The plan was to jumpstart economic growth, and save between 900,000 - 2.3 million jobs. The economic stimulus bill allocated funds as follows: $288 billion in tax cuts, $224 billion in extended unemployment benefits, education and health care, and $275 billion for job creation using federal contracts, grants and loans. If America needed a second round of economic stimulus package like the American Recovery and Reinvestment Act of 2009, as an advisor to the president I would provide both positive and negative impacts, gains and losses , monetary and inflationary impacts, trade and trade deficits impacts, and tax considerations. Although the economic stimulus package was to be spent over ten years, the bulk was budgeted for the first three fiscal years: $185 billion in 2009, $400 billion in 2010 and $135 billion in 2011. The Plan did better than that. By October 30, 2009, over $241.9 billion had been spent: $92.8 billion in tax relief, $86.5 billion in unemployment and other 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 or loans. (Recovery.gov) .The CBO projected these funds would increase GDP growth by 1.4% - 3.8% by the end of 2009. This did not mean GDP growth was positive. The economy could remain in recession, defined as negative GDP growth. In fact, the CBO forecast the economy would be down 3% for 2009.(Recovery.gov)

I would advise the president based off positive and negative impacts. One positive impact is based off of simple Keynesian models; the rationale for increased government spending during a recession is straightforward. If governments employ underutilized labor and capital when they spend more, that provides an immediate boost to employment and output. A further stimulus comes from the spending by the owners of the unemployed labor and capital who benefit from the government spending. Their spending helps multiply the effects of the government spending still further, and so does spending by the recipients of this second round of spending. The total impact is the sum of all these separate boosts, and its ratio to the initial level of government spending is called the spending multiplier. A study by Dr. Christina Romer, Chair of the Council of Economic Advisers, published shortly before she took office claimed the spending multiplier during the recession at that time would be well over 1.0.( www.uchicagolaw.typepad.com). Another positive effect of a second stimulus packet is that it would put more money in the economy to circulate and more people would be willing to buy more goods. Companies will have more money and they would be willing to spend more and hire more people. The unemployment rate would start to diminish and the employment rate and employment force will start to increase. Job growth would come from projects to rebuild roads and bridges, plus make schools, homes and government buildings more energy-efficient, among other initiatives. Of course, construction projects aren't all alike and workers from, say, the residential industry may need to retrain.

There are also negative effects to a second stimulus. Some experts say that it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation...
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