American Recovery and Reinvestment Act of 2009

The Law: Federal legislation that was designed primarily to create jobs and stimulate economic growth in an effort to end the serious and protracted recession then existing in the United States

Date: Enacted February 17, 2009

Also Known As: ARRA; Economic Stimulus Act; Economic Stimulus Bill; Recovery Act

The American Recovery and Reinvestment Act of 2009 was Congress’s response to the economic downturn, or financial crisis, that began approximately in 2007, and continued several years thereafter. The act—essentially a government spending bill—was primarily designed to create new jobs, to save existing jobs, and to provide financial resources to federal, state, and local government programs that had been adversely impacted by the protracted economic downturn.

Beginning approximately in late 2007, the United States began to experience a financial crisis second in severity only to the Great Depression. Generally, this period saw the so-called housing bubble burst, leading to a decline in housing prices and a rise in home foreclosures. Simultaneously, unemployment rates increased. Banks and other financial institutions suffered significant losses, with some filing for bankruptcy, and consumers began to experience losses on their investments, including retirement funds. Additionally, capital investment declined, and, for most individuals, income levels decreased. The overall result was a widespread and protracted economic downturn that negatively affected millions of Americans, as well as businesses across the country. The economic downturn was not limited to the United States. To be sure, many countries, including several of the United States’ trading partners, experienced similar economic problems during this period in time.

Passage and Scope of the Recovery Act

After being elected president, but before taking office in 2009, Barack Obama had considered, and had convened studies concerning, the possible effect of a comprehensive economic stimulus bill. In January 2009, shortly after Obama’s inauguration, the House of Representatives and the Senate each proposed versions of what would eventually become the American Recovery and Reinvestment Act (ARRA). After the bills were compared, a conference report of the bills passed the House of Representatives, and shortly thereafter, the bill was passed by the Senate in a 60–38 vote. On February 17, 2009, approximately one month into his presidency, President Obama signed ARRA into law. Importantly, nearly all congressional Democrats supported the act, and nearly all congressional Republicans opposed it. Accordingly, the act itself was both contentious and divisive from the beginning.

As passed, ARRA is primarily a spending bill that was designed to jump-start the US economy after the protracted recession. The act had several enumerated purposes, namely, to save and create jobs and stimulate economic recovery; to help Americans who had been adversely affected by economic conditions; to invest in technology, science, and health-related endeavors; to fund transportation and environmental protection initiatives that were believed to have long-term economic benefits; and to prevent shortfalls in state and local governmental budgets with the goal of avoiding the elimination of important government services and state or local tax increases. At the time of passage, the total cost of ARRA was estimated at $787 billion. According to a February 2012 report from the Congressional Budget Office, the total financial impact of the act between 2009 and 2019 will be approximately $831 billion—$44 billion more than the initial estimates.

Spending and Investment Provisions of the Recovery Act

ARRA included hundreds of provisions specifically designed to implement the stated purposes. Specifically, the act included tax incentives for individuals and families, such as a payroll tax credit, the expansion of the child tax credit, a homebuyer tax credit, and an energy tax credit. The act appropriated approximately $87 billion to fund Medicaid, and $25 billion to aid in subsidizing health care premiums for the Consolidated Omnibus Budget Reconciliation Act (COBRA), a health benefit program for the unemployed. Other key provisions concerned funding for education. Nearly $54 billion was allocated to prevent layoffs and other budget cuts in schools; approximately $16 billion was earmarked to increase the value of Pell Grants, which are funds available to certain college students.

Another major arm of ARRA included funding for the unemployed, the poor, and the retired. At the time the act was passed, unemployment and underemployment figures were at extremely high rates. Specifically, $40 billion was allocated to extend unemployment benefits and to increase the value of such benefits. Additionally, nearly $20 billion was directed to the food stamp program whereby low-income Americans could more easily purchase certain food items. Further, $14 billion was allocated to one-time $250 payments to those receiving Social Security, as well as veterans who were receiving disability payments. Lesser amounts were allocated to fund food banks and to provide job training for groups such as the elderly and the disabled.

A further stated goal of ARRA was to put Americans back to work. To that end, $27.5 billion was used to fund construction projects related to highways and bridges, and another $8 billion was set aside to fund railway projects. Many of these projects were considered “shovel-ready,” in the sense that the projects had been deemed ready to be completed but had lacked funding or approval until specifically authorized by the act.

Other provisions included funding for Army Corps of Engineer environmental projects; approximately $7 billion allocated to improve governmental facilities; $1 billion to fund explosive detection systems at United States airports; $6 billion to clean up hazardous waste sites; $27 billion dedicated to renewable energy and other energy related efficiency projects, which included $6 billion in guarantees for renewable energy sources; $4 billion to the Department of Housing and Urban Development to repair public housing; $3 billion to the National Scientific Foundation for research; and $4 billion to state and local law enforcement.

Impact

As previously noted, ARRA was highly controversial at the time of its passage, with almost all House and Senate Democrats supporting it, and nearly all House and Senate Republicans in opposition. Not surprisingly, there still exists great divide among economic scholars, politicians, and members of the general public as to whether ARRA was successful or, rather, whether it simply was an example of wasteful government spending that provided no meaningful benefit for most Americans.

In July 2011, President Obama stated: “I’m absolutely convinced, and the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs or created a whole bunch of jobs.” Dylan Matthews of the Washington Post analyzed nine economic studies of ARRA in 2011, and noted that, in six of the nine studies, the economists had concluded that the act did have a significant and positive impact on employment and growth. The economists who conducted the remaining three studies concluded that the overall impact of the act was negligible or impossible to detect.

In May 2012, the Congressional Budget Office, a federal agency whose chief task is to provide objective and nonpartisan economic data and analysis to Congress, released statistics related to the practical impact of ARRA with respect to the first quarter of 2012 only. These statistics are interesting because they begin to analyze the long-term effects of the act, rather than the immediate effect that it had in 2009. Among the findings for the first quarter of 2012 were the following: ARRA raised the United States’ real gross domestic product between 0.1 percent and 1 percent; it lowered unemployment by between 0.1 percent and 0.8 percent; it resulted in between 200,000 and 1.5 million people being employed; and it increased by between 300,000 and 1.9 million the number of full-time jobs. The findings also noted, however, that the effects of ARRA peaked in early 2010 and had since diminished.

The long-term success or failure of ARRA likely will not be known for some time, however. For example, it is impossible to accurately gauge the billions invested in programs such as clean energy and energy efficiency until the overall feasibility of clean energy itself—a program in a relative stage of infancy—is more accurately calculable. Additionally, as some economists have noted, it is difficult to separate with complete accuracy, for example, the number of jobs created in 2009 that were a result of ARRA and the number of jobs created in 2009 that were a product of the economic supply and demand that existed at that specific time. Some created jobs, in fact, may have been a combination of both ARRA and the prevailing economic conditions at that time. As with any controversial political decision, the successes and the failures of ARRA will be debated for years to come.

Bibliography

Gandel, Stephen. “Obama’s Stimulus Plan: Failing by its Own Measure.” Time. Time, 14 July 2009. Web. 3 Nov. 2012.

Grabell, Michael. Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History. New York: Perseus, 2012. Print.

Grunwald, Michael. The New New Deal: The Hidden Story of Change in the Obama Era. New York: Simon, 2012. Print.

Leonhardt, David. “Judging Stimulus by Job Data Reveals Success.” New York Times. New York Times, 16 Feb. 2010. Web. 3 Nov. 2012.

Tellis, Paul G., ed. American Recovery and Reinvestment Act: History, Overview, Impact. Happauge: Nova, 2010. Print.