Meltdown 101: Highlights of economic stimulus plan

[February 12, 2009]  (AP)  Now that there's a tentative agreement on the economic stimulus plan that President Barack Obama and other supporters hope will provide a considerable jolt to the economy, how long will it take to get infrastructure and other projects moving? And do economists think the plan is big enough to create millions of jobs?

Here are some questions and answers about the latest version of the stimulus initiative.

Q: What are the main objectives of the package?

A: A combination of tax cuts and spending incentives totaling nearly $790 billion is aimed at putting money back in the pockets of consumers and businesses and creating millions of jobs. It also looks to accomplish some long-term goals, such as making the country more energy efficient and improving the nation's crumbling roads and bridges.

Overall, the package breaks down to nearly two-thirds spending initiatives and just over one-third tax cuts.

Q: Does the bill include federal aid to the states?

A: Yes. It includes major contributions to states to help with their budget shortfalls and assure the viability of Medicaid and education programs.

Sen. Susan Collins of Maine, the moderate Republican who helped broker the deal, said the spending includes about $90 billion in increased federal matches to states to help pay for Medicaid. It also has a $54 billion "fiscal stabilization" fund that states could use to avoid cuts in aid to local schools. About $10 billion of that could be used to modernize schools, including colleges and universities, but not to build new ones.

Q: What are some of the other main focuses of the bill?

A: Here are some highlights:

Education: The package has $11.5 billion to support the IDEA program for special education. There's another $10 billion for a federal program to help low-income students.

Energy: The package includes funds to modernize the electrical grid -- in part by incorporating renewable energy resources -- and to make federal buildings more energy efficient and help low-income households weatherize their homes.

Health: The plan includes subsidies to allow people who are laid off to purchase health insurance through the federal COBRA plan. There is also money to support hospitals seeking to modernize health information technology.

Infrastructure: The infrastructure section of the package includes funds for building and repairing highways and bridges, expanding transit systems, upgrading airports and rail systems, and building and repairing federal buildings -- with the focus on making them more energy efficient. Funds are available for clean water projects, cleanup of environmental waste areas and nuclear waste cleanups.

Money devoted solely to transportation infrastructure reaches almost $50 billion. Collins said that when all the infrastructure projects for roads, sewers, energy and electricity transmission are added up, it will reach about $150 billion.

The package includes money to bring broadband Internet service to underserved areas.

Other highlights: The plan also supports National Institutes of Health research and contributes to programs in the Departments of Defense, Homeland Security, Veterans Affairs and State.

Q: What are some of the tax breaks in the bill?

A: It includes Obama's signature "Making Work Pay" tax credit for 95 percent of workers, though negotiators agreed to trim the credit to $400 a year instead of $500 -- or $800 for married couples, cut from Obama's original proposal of $1,000. It would begin showing up in most workers' paychecks in June as an extra $13 a week in take-home pay, falling to about $8 a week next January.

There is also a $70 billion, one-year fix for the alternative minimum tax. The fix would save some 20 million mainly upper-middle-income taxpayers about $2,000 in taxes for 2009.

Q: How will infrastructure spending affect jobs?

A: The Federal Highway Administration has estimated that every $1 billion the federal government spends on infrastructure projects translates to 35,000 jobs. Collins put the total infrastructure spending -- including highways, mass transit, environmental cleanups and broadband facilities -- at $150 billion. Do the math and that translates into more than 5 million jobs, based on the highway administration's assumptions.

Senate leaders have offered their own estimate -- they said Wednesday that the total stimulus package will sustain some 3.5 million jobs.

Q: How long would it take for highway projects to begin?

A: Lawmakers say most of the projects could be up and running within 90 days, although it could take somewhat more time in northern states with longer winters. Highway construction groups have estimated that there are thousands of projects that could be started within that 90 days.

Q: Do economists feel the stimulus package is big enough to actually stimulate the economy?

A: Many leading economists have concluded that the stimulus alone may be insufficient to bring a quick turnaround for the economy.

Mark Zandi, chief economist at Moody's Economy.com, called for a larger package of spending and tax breaks and predicted that unemployment could top 9 percent next year, up from the current 7.6 percent, even if an $800 billion package is enacted. Nobel laureate economist Paul Krugman also contends that $800 billion will fall short of filling the gap left by projected reductions in consumer and business spending.

Obama has also acknowledged that the stimulus measures are only "one leg of the stool" needed to stabilize the economy. Spending initiatives and tax cuts, he has said, must be combined with the ongoing massive effort to restore confidence and integrity to financial markets, get credit flowing again and right the collapsed housing market.

[Associated Press]

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