February 20, 2009 Volume 110 Number 4

Congress passes stimulus package

By DON McINTOSH Associate Editor

To respond to the biggest economic crisis in at least a generation, Congress in mid-February passed its biggest stimulus package ever, the American Recovery and Reinvestment Act of 2009. The act’s $787 billion in new federal spending and tax cuts will cushion the plight of the jobless and put some people back to work.

Will it bring about recovery? Time will tell. The package may end up creating as many as 700,000 jobs in construction, for example, but there are already 1.7 million unemployed construc- tion workers, and Americans lost 598,000 jobs overall last month alone.

The Obama Administration says 3.5 million jobs will be created or saved over the next two years (estimating 44,000 jobs in Oregon and 75,000 jobs in Washington), with over 90 percent in the private sector.

The final bill signed by President Barack Obama on Feb. 17 was very different from the version the U.S. House passed two weeks earlier — tax cuts were increased, infrastructure spending was decreased, and state governments got a lot less aid. The U.S. Senate made change after change to accommodate its Republican minority, which then voted against it anyway. Leaders of both chambers then met to work out differences in their versions, and presented a final bill for approval in the House and Senate.

“I feel like we had a bipartisan package,” said U.S. Sen. Jeff Merkley (D-Ore.) at a Feb. 16 Portland press conference explaining the bill. “We did not have a bipartisan vote.”

In the Senate, the final version passed 60 to 38, with Republicans providing all the “no” votes and just three of the “yes” votes. In the House, where it passed 246 to 183, not a single Republican voted for it, while all but seven Democrats voted for it.

“You’ll have to ask those across the aisle why they chose to go a different direction,” Merkley said. “I think they’ve stated fairly clearly what they’re doing. They hope to take the mess they’ve created over the last eight years and turn it into President Obama’s mess.”

Since late last year, unions have fought hard in Washington, D.C., for a federal economic rescue bill that would emphasize spending on infrastructure — so-called “shovel ready” projects that could immediately employ workers. But infrastructure investments ended up being less than 10 percent of the American Recovery and Reinvestment Act, while tax cuts were four times that amount. The package is projected to cost $787 billion; $461 billion of that is new spending, and $326 billion (41 percent) is tax cuts.

Tax cuts are a diluted way to stimulate an economy compared with direct spending, critics like U.S. Rep. Peter DeFazio (D-Ore.) argued. DeFazio was one of the seven Democrats to vote against the stimulus bill, after infrastructure spending was greatly reduced.

The biggest of the tax cuts — the Making Work Pay tax credit — amounts to just under $8 a week for an individual.

Unlike the multiple rounds of tax cuts approved during the Bush Administration, this set of cuts does not give the biggest benefit to the richest payers. The Making Work Pay tax credit was proposed by President Obama in order to fulfill a campaign promise that 95 percent of American workers would see lower taxes. The credit will be $400 for individuals and $800 for couples and it will appear immediately on paychecks, thanks to a change in the withholding formula. It applies to wage earners making up to $75,000 ($150,000 for a couple), and fades out gradually above that amount. It will cost the U.S. Treasury $20 billion this year, $66 billion next year, and $30 billion the year after. Then business tax cuts in the bill amount to $76 billion over the next two years. And another $70 billion is the cost of a one-year “patch” to limit the Alternative Minimum Tax. It’s hard to see how that could be considered a stimulus: Congress has passed a similar measure every year since 2001.

For the most part, the tax cuts will generate relatively little economic activity. But the spending parts of the stimulus package will put money in the hands of unemployed and low-income workers, and put some back to work. The summary of the stimulus package’s spending side, put together by the House-Senate Conference Committee, runs 136 pages long. For the most part, it puts new money into existing formulas to increase the local economic impact of federal spending. And it embarks on a federal government building boom and buying spree to stimulate demand for goods.

Under the package, unemployment insurance benefits will go up by $25 a week. Social Security recipients will get a one-time $250 bonus. Food stamp benefits will increase 14 percent. All those funds will be spent locally.

More people will be made eligible for Medicaid, the government-paid health insurance program for the poor.

A House-passed provision to let unemployed workers get into Medicaid was scrapped in the final version. Instead, the government will pick up the tab for 60 percent of COBRA premiums. COBRA is the acronym for the law that lets laid-off workers keep employer-sponsored health coverage — by paying for it themselves. Problem is, monthly premiums average $388 for individuals and $1,069 for family coverage, while monthly unemployment benefits average $1,278. Odds are that many of the jobless still will be unable to afford the insurance.

The package also contains: $100 billion for local education grants; $15.6 billion for Pell Grants for college tuition; $4 billion for job training; $16.8 billion for energy efficiency and renewable energy; $11 billion for medical research; $7 billion for scientific research; $300 million to buy domestically produced hybrids for the federal government vehicle fleet; and $1 billion for checked baggage explosives detection systems in airports.

It increases the borrowing authority of Bonneville Power Administration by $3.25 billion, which the federal power agency will use for new electricity infrastructure in the Pacific Northwest.

It provides $515 million funding for a “Jobs in the Woods” program to prevent forest fires by thinning overgrown second growth forests. Oregon is likely to get a good share of those funds, and the thinning will make merchantable timber available for milling.

There’s $27.5 billion for highway and bridge work; $8 billion to build high-speed rail; $7 billion for water projects; $6.9 billion for mass transit; $6 billion for environmental cleanup at former weapon production and energy research sites; $4.7 billion to bring broadband internet to rural areas; $4.6 billion for Army Corps of Engineers work; $4.5 billion to convert federally owned buildings to High-Performance Green buildings; $4 billion to retrofit public housing; $1 billion to construct and renovate research facilities, and on and on.

In each case, federal agencies are expected to spend the money on projects that can begin quickly and result in high, immediate employment. And all iron, steel, and manufactured goods used in any infrastructure project funded by the package will have to be produced in the United States — thanks to a “Buy America” provision that unions, particularly the United Steelworkers, fought hard for.

Labor leaders applauded Congress for taking action, but warned that more will be needed. Laborers International Union President Terence O’Sullivan said the package provides “only a fraction of the $2.2 trillion our transportation systems, energy systems and schoolhouses need. The plan is a leap forward, but it cannot become a ‘we already gave’ sign that blocks sorely needed resources, leading to continued deterioration of the basics of our country and our economy.”

U.S. Sen. Ron Wyden (D-Ore.) put it this way at the Feb. 16 press conference: “If you’re a worker and you’ve been laid off, you’re not in a downturn, you’re in a free-fall. This may not show us where the bottom is, but it definitely stops the free-fall.

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