Frequently Asked Questions

Q: How does the American Recovery And Reinvestment Act work?

A: Now that the American Recovery and Reinvestment Act is signed into law, the next step is for federal agencies like the Department of Energy, Department of Education and others to decide how the money will be spent. In some cases, state governments will receive funding and decide how to spend it. In other cases, the funding will go directly from the federal agency to a project or grant. Information about where the agencies are directing their funding is intended to be available at http://www.recovery.gov so the public knows how its tax dollars are being spent.

Q: Will the recovery plan work fast enough to fix the economy? 

A:  The recovery plan is well-timed with nearly 75 percent of its investments and tax cuts pumped into the economy in the next 18 months, according to the non-partisan Congressional Budget Office. The White House has committed that 75 percent of the funds will be spent in the first 18 months.

As columnist Steven Pearlsteing said: "Let's review some of the more silly arguments about the stimulus bill, starting with the notion that "only" 75 percent of the money can be spent in the next two years, and the rest is therefore "wasted." As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures."  [Washington Post, 2/6/09]

Q: Why did you have to act so fast to enact this bill?

A:  Economists from across the spectrum have warned that if we don't act immediately, millions more jobs will be lost, and national unemployment rates will approach double digits.  More people will lose their homes and their health care.  And our nation will sink into a crisis that, at some point, we may be unable to reverse. The impact on our long-term deficit would be catastrophic.  Failure to act would likely have caused 5 million more jobs lost than without a stimulus; the economy would have been likely to see, in each of the next three years, $3 trillion in total - a trillion dollars each year - shortfall in what this economy is producing and what it could produce.

Mark Zandi, chief economist with Moody's Economy.com said:  "The stimulus plan as laid out will provide a vital boost to the flagging economy. Without it, the jobless rate is headed well into the double digits, a depression in my nomenclature. Stimulus is more than dollars and cents, however. It has to be passed quickly and sold well to shore up crumbling confidence." [Seattle Times, 1/16/09]

Q: How did we get in this mess to begin with?

A: We face an economic recession unrivaled since the Great Depression, as a result of years of failure to invest in our own global competitiveness, failures to bring common sense rules to Wall Street and our housing market, and tax policies that favored massive corporations and most affluent individuals, instead of strengthening the middle class.  Under recent Republican economic policies:

• The national debt has almost doubled in the last 8 years, with debt borrowed from foreign countries tripling.
  
  
• President Bush turned record surpluses into the worst deficit in American history.
  
  
• American income disparity is at its worst level since The Gilded Age of the 19th century.  The rich are richer and everyone else has seen their pocketbook strained by stagnant paychecks and rising prices.
  
  

Q:  Doesn't the Congressional Budget Office (CBO) say that the Recovery bill hurt the economy?

A:  CBO estimates that the recovery plan will create jobs (up to 3.6 million over the next 2 years) and increase economic growth for the next five years - getting us out of this economic crisis.  If we do not address high deficits once the economy recovers, CBO estimates that GDP growth in 2015 to 2019 will either be not affected by the recovery package or be slighter lower (0.2 percent less).

However, President Obama has already offered a budget that will cut the deficit in half over the next four years.   President Obama's overall plan for fiscal responsibility is not taken into account in CBO's estimate of a slight decline after five years, and that any minor decline in GDP is a direct result of current estimates of rising national debt.

Q: I receive Social Security. How does this bill help me?

A: Social Security recipients will receive $250 through the American Recovery and Reinvestment Act. The Social Security Administration says it plans to "pay all eligible Social Security and SSI beneficiaries by late May 2009, so you should expect to receive your payment no later than the first week of June 2009. The one-time payment will be a separate payment, which will not be included in your regular monthly benefit payment."

Q: I heard on the radio that this bill rations health care. Is that true?

A: No. The stimulus bill does not contain any provisions to ration health care for seniors or others. The law does provide funding for research into the effectiveness of different treatments for a given illness. The purpose of this research is not to deny needed treatment to individuals, but to make sure they get the best treatment by providing data on which procedures are most effective and appropriate.

Contrary to other rumors, there is no "new" National Coordinator of Health Information Technology (NCHIT) - the position already exists, and it was created by George W. Bush.  There is no "secret government database."  The new legislation does not grant the federal government access to confidential documents, nor does it require physicians to follow treatment guidelines. In order to become "meaningful users" of health IT, doctors have to implement an electronic system by 2015, but they are not required to change their treatment practices

Q: Are there earmarks in this bill?

A: No. There are no earmarks in the American Recovery and Reinvestment Act. Partisan critics have focused on attention on less than 1 percent of the bill's provisions, most of which would create jobs, save taxpayers' money or both. As TIME magazine wrote:  "the austerity scolds have found surprisingly few specific outrages."  [TIME, 2/16/09]

Some of the common criticisms: 

• Weatherizing low-income homes--which would create jobs in a hurry, save homeowners money on their energy bills, and reduce the carbon emissions that keep us dependent on foreign oil. "What's the argument in favor of heating and air-conditioning the outdoors?" [TIME, 2/16/09]
  
  
• Investments in ‘smoking-cessation activities' and other preventative health measures are an effective way to hold down the long-term health costs that threaten the Treasury's long-term solvency.
  
  
• Turning federal buildings into "green" buildings, with will create short-term jobs for retrofitters while reducing long-term federal energy costs and emissions. [TIME, 2/16/09]
  
  
• Replace the federal fleet with fuel efficient cars, which will create jobs for people who make those cars, while saving the federal government energy and saving taxpayers money.

The investments in the bill were carefully selected because they will do one of two things: Create or save jobs immediately or create jobs for the long-term and put us on the road to long-term economic recovery.

Q: If I’m recently unemployed, can I qualify for assistance paying for health insurance through COBRA?

A: Employees who are laid off from their jobs between September 1, 2008, and December 31, 2009, may be eligible for a 65 percent subsidy on their COBRA health insurance premiums for nine months. If you have already enrolled in COBRA to continue your employer-sponsored health insurance, you should notify your previous employer that you would like to receive this new subsidy for your premium payments. If you did not enroll in COBRA at the time you were involuntarily terminated, you have sixty days to enroll and begin receiving the new subsidy for your premium payments. To find out if you are eligible for this assistance, you may visit http://www.dol.gov/ebsa/COBRA.html, contact your employer, or contact Congressman Obey.

Q:  Won't much of the investment in highways, bridges and other infrastructure take too long to help revive the economy? 

A:  The bill includes strict accountability measures to ensure that highways and transit funds get out the door quickly to create jobs -- requiring states to obligate 50 percent of the highway and transit funding within 90 days.  There are more than 5,000 ready-to-go transportation infrastructure projects totaling over $64 billion.  Getting funds to those projects will create more than 800,000 jobs and help turn this economy around.

Q.  Won't it take years for some of the funds to be used?  How is that stimulus?

A.  While most of the funding will be spent in the next two years, many economists believe that the economy will still be weak at that point.  Those investments that will continue to spend out after 2010 can be helpful in smoothing the course of the recovery, while providing longer term benefits to the economy.  CBO Director Elmendorf stated that "CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate." [Testimony, 1/27/09]

On top of jumpstarting the economy and creating jobs immediately, this package contains investments in the long-term future of America, to lessen our dependence on foreign oil, to ensure our children are educated for the jobs of this new century, to strengthen our competitiveness, and to reduce health care costs.

Q: Won't this lead to massive debt for future generations?

A.   If we do not act quickly and wisely, our national debt will explode even larger and faster, as the recession stretches on and deepens.  In that scenario, we will not be able to dig ourselves out.  Economic growth is the key to dealing with the debt we face.  Investment that expands the economy can eventually pay for itself, as less government spending is needed and growing income spur greater tax receipts.  Economic forecasting firm Macroeconomic Advisers projects that a similar economic recovery plan could pay for up to 40 percent of itself via higher tax revenue over the next five years. [Wall Street Journal Blog, Real Time Economics, 1/15/09] 

Q:  Is it true that input from Republicans was ignored?

A:  No. The bill got to the Floor after fair and extensive deliberations in the Ways and Means, Energy and Commerce and Appropriations committees.  A number of Republican ideas and amendments were incorporated into the bill, ranging from business tax cuts, such as net operating losses and bonus depreciation, to expanding the homebuyers tax credit, and staving off a tax increase under the Alternative Minimum Tax. Some Senate Republicans actually played a major part in reaching the final agreement on the package.  However, ideas were not adopted that repeated mistakes of the past.

Q:  Someone told me that under the bill it will cost $275,000 per job.  Is that correct?

A: No.  As Nobel prize winning economist Paul Krugman said, that is a bogus charge: "Why is it bogus? Because it involves taking the cost of a plan that will extend over several years, creating millions of jobs each year, and dividing it by the jobs created in just one of those years.  It's as if an opponent of the school lunch program were to take an estimate of the cost of that program over the next five years, then divide it by the number of lunches provided in just one of those years, and assert that the program was hugely wasteful, because it cost $13 per lunch. (The actual cost of a free school lunch, by the way, is $2.57.) The true cost per job of the Obama plan will probably be closer to $100,000 than $275,000 - and the net cost will be as little as $60,000 once you take into account the fact that a stronger economy means higher tax receipts."

Q:  I heard that the Making Work Pay Tax cut provides only $8 per week. Is that true?

A:  To deploy the $400 per year for individuals and $800 per year for couples Making Work Pay tax cut quicker than any tax cut in history it will be spread out over weekly paychecks - boosting the stimulative effect.  As President Obama has said: "By April 1st, a typical family will begin taking home at least $65 more every month. Never before in our history has a tax cut taken effect faster or gone to so many hardworking Americans."  An extra $65 each month could mean being able to fill up the tank for a week, to pay for a week's worth of health care bills, or paying the monthly bill for telephone for the average American family.  [Consumer Expenditures Survey, 2007]  This addition to paychecks will prompt much-needed consumer spending to stimulate the economy - in contrast, to last year's lump-sum rebate which was used by some for savings or to pay off credit cards.

Q:  Some say that tax cuts are the most effective way to stimulate the economy and complain that this bill does not have enough tax cuts.  Is that true?  

A:  This legislation provides one of the largest tax cuts in American history.  Tax cuts, largely for the middle class, make up more than one-third of the bill--including to 95 percent of working Americans.  While these tax cuts can help increase economic activity, most economists agree that we get the most ‘bang for the buck' through investments that directly create jobs and put money into the hands of Americans who will spend it quickly.  For eight years, we tried an all-tax-cut approach under President Bush and it didn't work.

Q:  Wouldn't a cut in the corporate tax and capital gains and dividend tax better grow the economy? 

A:  Numerous non-partisan government and independent studies agree that corporate tax rate cuts have relatively little 'bang-for-the-buck' as stimulus.   The Congressional Budget Office say that a reduction in the corporate tax rate is "not a particularly cost-effective method of stimulating business spending" because "[i]ncreasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output." [1/08]  Mark Zandi, chief economist and co-founder of Moody's Economy.com who was a McCain campaign economic adviser, estimates that every dollar spent through a cut in the corporate tax rate produces only $0.30 of economic activity- one of the three least-efficient stimulus provisions.

Regarding the capital gains tax rate, according to a 2003 Congressional Research Service (CRS) report: "A capital gains tax cut appears the least likely of any permanent tax cut to stimulate the economy in the short run; a temporary capital gains tax cut is unlikely to provide any stimulus"... "[t]here are reasons to expect that capital gains tax cuts would have the smallest stimulative effect on the economy of virtually any fiscal stimulus option."  The Urban Institute-Brookings Tax Policy Center has estimated that 75 percent of the benefit of temporarily cutting the capital gains rate in half would flow to the top 1 percent of households, making it very poor stimulus as high-income households are much more likely to save rather than spend.

Q:  Will undocumented immigrants get the Making Work Pay tax cut?

A: The measure explicitly provides tax cuts to workers who are here legally and pay taxes. The measure prevents anyone without a Social Security number from claiming the credit and it expressly disqualifies nonresident aliens.  The requirements in this bill are the same that were used for the 2008 rebate checks that passed with Republican support and signed by President Bush.   

Q:  Does the plan give tax refunds to people who do not pay taxes?

A:  No. The Making Work Pay Tax Cut provides immediate and sustained tax relief to 95 percent of American workers through a refundable tax credit of up to $400 per worker ($800 per couple filing jointly).  All workers pay Social Security and Medicare taxes. 

Q:  Does social service spending create jobs?

A:  Economists say investments in food stamps and unemployment benefits are some of the best tools to generate immediate, targeted economic growth that will result in job creation throughout our economy.  Every dollar invested in SNAP/food stamps creates $1.73 in economic activity, and every dollar invested in unemployment insurance creates  $1.64 in additional economic activity.   Both  put money in the hands of families who will spend it immediately.

Q: Why is state aid vital to immediate job creation and long-term economic recovery?

A: State deficits are expected to total $350 billion through state fiscal year 2011.  Without aid, states will have to cut jobs that provide vital services like education, health care and public safety or raise taxes.  At least 33 states have already made or proposed budget cuts in areas such as health care and education, and at least 14 states have raised revenues.  [CBPP, 1/16/09]  And states could be forced to cut as many as 425,000 jobs in FY2009 and almost 900,000 jobs in FY2010 for police, teachers and firefighters for example. [CEPR, 12/30/08]  These state budget cuts and tax increases will further weaken the economy, by shrinking overall demand. 

Every dollar in aid to state government generates $1.38 in economic activity, as states have the mechanisms in place to spend their federal dollars immediately on critical needs.

Q:  Haven't governors mismanaged their money? Why should federal taxpayers now have to bail them out?

A:  States entered the recession with the largest reserves in their history - but those reserves are now mostly gone because of the sharp downturn in the economy.  At the end of fiscal year 2006, state reserves - in the form of general fund balances and "rainy day" funds - totaled 11.5 percent of annual state spending, the highest level on record.  The fact that 46 states face budget deficits in 2009 or 2010 -- under both Democratic and Republican leadership -- shows that the recession, not mismanagement, is the cause of the state budget shortfalls.  

Q: Why does the bill contain investments in preventive health care like vaccines for children and screening for HIV/AIDS?

A.     Preventive health care is a proven money saver and investments in these efforts create and save health care jobs.  Preventing diseases, rather than waiting and caring for those after they have become sick, is estimated in numerous studies to be one of the most effective ways to reduce health care spending. 

Q:  Does the plan include a magnetic levitation line from Las Vegas to Disneyland?

A:  No. There are no earmarks in the bill.  The recovery package does invest in a bold and innovative plan to expand high-speed rail.  Connecting cities with faster rail service will relieve congestion, improve energy conservation, spur commerce between cities, create jobs, and revitalize local economies.  High-speed rail plans span the country from Florida to Ohio, from the Northeast to California.  The Las Vegas to Los Angeles lines could apply for some of these funds.

Q: Where can I get more information?

A: The White House set up a website, http://www.recovery.gov , which includes more information and will eventually allow the public to track the progress of the American Recovery and Reinvestment Act. Governor Jim Doyle is also tracking the use of funds in Wisconsin from the economic recovery package at http://www.recovery.wisconsin.gov.