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New CBO Report Confirms Suspicions About “Stimulus” Plan

3 min readBy: Scott Hodge

The Congressional Budget Office has released an official cost estimate of the House-passed “economic stimulus” plan, H.R. 1 The American Economy and Reinvestment Act of 2009. The report confirms suspicions that the plan has turned into a vehicle for Congressional largess with almost no coherent strategy for improving the economy.

According to CBO, the plan includes $604 billion in new spending and $212 billion in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cuts for a total cost of $816 billion over the 2009 to 2019 period. While supporters of the plan claim that it must be enacted soon to get government cash into the economy, only 15 percent (or $93 billion) of the spending will occur during this fiscal year which ends in October. Only 37 percent of the spending would occur in FY 2010, which means that roughly half of the plan’s spending will occur in FY 2011 and beyond. The economy is going to be well back to health on its own by the time any of this takes effect.

While economists differ on whether Keynesian demand-side spending can boost economic growth in the short run as much as it hurts in the long run, even the most ardent advocates would agree that the plan spends too little in the short run to make much of a difference. CBO estimates that GDP will total $28.8 trillion over the next two years but the plan spends $318 billion during the same period — just 1.1 percent of GDP. This is like pouring a teaspoon into the ocean.

On the tax side, only about 36 percent of the $212 billion in tax cuts will benefit taxpayers this year and the rest will benefit them next year. To make matters worse, the tax provisions are heavily weighted toward “refundable” tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s for families which are little different from the ineffective tax rebate checks Congress approved in 2008.

Perhaps the best thing about the plan is that it gives the lie to claims that “we cannot afford to renew the Bush tax cuts.” Congress apparently believes that taxpayers can afford $287 billion in new spending beyond 2010, so why can’t we afford to extend the Bush tax cuts?

Lawmakers need to go back to the drawing board and craft a plan that addresses the real problems facing the economy, such as a corporate tax code that is making the U.S. less competitive globally. The economy is not in recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. because of a lack of government largess and will not be “jump-started” by more of it.

(In Millions)

FY 2009

FY 2010

FY 2011-19


Division A – Discretionary Spending

Title I – General Provisions





Title II – Agriculture, Nutrition, and Rural Development





Title III – Commerce, Justice and Science





Title IV – Defense





Title V – Energy and Water





Title VI – Financial Services and General Government





Title VII – Homeland Security





Title VIII – Interior and Environment





Title IX – Labor, Health, and Human Services and Education





Title X – Military Construction and Veterans Affairs





Title XI – Department of State





Title XII – Transportation and Housing and Urban Development





Title XIII – State Fiscal Stabilization Fund





Total Division A





Division B – Direct Spending

Title I – Tax Provisions





Title II – Assistance for Unemployed Workers and Struggling Families





Title III – Health Insurance Assistance for the Unemployed





Title IV – Health Information Technology





Title V – Medicaid Provisions





Total Division B





Total All Spending





Percentage in Year




Tax Revenues (Cuts)





Percentage in Year




Total Cost of H.R. 1





Percentage in Year