The American Recovery and Reinvestment Act of 2009, also called ‘The Stimulus’ or ‘The Recovery Act’, is an important step taken by the US Congress in order to fight the prevailing economic crisis.
The act is a stimulus package enacted by the 111th US Congress. It was passed by the House of Representatives on January 28, 2009, making supplemental provision of job preservation and creation, infrastructure investment, education, health care, assistance to the unemployed, and state and local fiscal stabilization.
It was a bill which was supposed to strengthen America’s middle class, through measures that modernize the nation’s infrastructure, and calls for the enactment of legislation to restore economic growth through various measures which help the:
- Modernization of America’s infrastructure
- Expansion of educational opportunities for American children
- Provision of tax benefits
- Revival of the American economy
The Senate voted on February 9, to advance the bill, and President Barack Obama signed it on February 17, 2009. The bill was a $780 billion package, and was later revised to $831 billion. The law is going to be in force till 2019.
Important Provisions of the Act
Some of the important aspects of this act are as follows:
Home Buyer Tax Credit and Tax Exemptions
The bill provided a $8,000 tax credit for first-time home buyers, who purchased a principal residence on or after January 1, 2009, and before December 1, 2009. To qualify as a first-time home buyer, the buyer (or his spouse) should not have owned a residence during the three years prior to the purchase. A sum of $237 billion was allocated for the tax relief of individuals. Out of this, a major chunk of $116 billion, provided new payroll tax credit of $400 per worker and $800 per couple.
It also gave $70 billion in the form of Alternative Minimum Tax, which was a one year increase in AMT floor to $70,950 for joint filers for 2009, and $15 billion for the expansion of child tax credit. There were provisions to expand college credit, and provide a $2,500 tax credit for college tuition and related expenses, for 2009 and 2010. However, the credit was phased out for couples earning more than $160,000.
FHA, Fannie Mae and Freddie Mac Loan Limits
The bill revised last year’s loan limits for FHA, Freddie Mac and Fannie Mae loans, and also included language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any area smaller than a county. However, the secretary’s discretion was limited by a $729,750 cap. The new loan limits were beneficial for homeowners, buyers, and realtors.
Tax Exemptions for Energy Efficient Housing
For the promotion of energy efficient housing, the bill provided $6 billion to the state and local governments as conservation grants for energy audits, retrofits, and financial incentives. Homeowners were able to claim a 30% tax credit for purchases of new furnaces, windows, and insulation through 2010, and $5 billion was allocated to modernize the nation’s electricity grid, to save consumers’ money.
According to the provisions in the bill, more than 11%, which was about $86.6 billion, was allocated to help states with Medicaid. The bill also provided $24.7 billion for a 65% subsidy of health care insurance premiums, for the unemployed under the COBRA program, $10 billion construction of National Institutes of Health facilities, and conducting health researches. In addition, it also provided $19 billion for the advancement in the field of health information technology, and $2 billion for community health services. Besides these projected expenditures, the bill also allocated money for various other health care issues, like Veterans Health Administration, and training of health-care personnel.
Provisions for low income workers, unemployed, and retirees
As an important aspect of the bill, $40 billion was allocated to provide extended unemployment benefits, and $14.2 billion to give $250 to all the Social Security recipients. Besides these, $3.95 billion was allocated for job trainings, $3 billion for welfare payments on temporary basis, $500 million for conducting vocational training programs for the disabled, $120 million for community service jobs for older Americans, and $400 million for employment services.
The bill has provisions to fight against the economic downturn, however, maybe because of some latent loopholes, many economists and think tanks have been against President Obama’s plan.
A full page advertisement with the names of approximately 200 economists appeared in The New York Times and The Wall Street Journal on January 28, 2009, funded by the Cato Institute, stated:
… we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s… To improve the economy, policymakers should focus on reforms that remove impediments to work, savings, investment, and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.