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Economic plan finds many ways to spend $800 billion

With Congress moving toward passage of an $800-billion-plus economic stimulus plan, big government is back. Unabashed. With a vengeance.

The stimulus is bigger than the Pentagon’s entire budget. It’s more than the United States has spent on the war in Iraq. And its hundreds of provisions reach into almost every aspect of American life -- including workers’ paychecks, local schools, digital television and modernizing medical records.

Perhaps not since the Great Depression has Congress set out to expand and redefine so dramatically the government’s role in the economy, all in one bewilderingly complex blueprint.

“The three-decade-long period where the default assumption was that government is the problem, not the solution, has clearly ended,” said Bill Galston, a senior fellow at the Brookings Institution and a former aide to President Clinton.

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If the enormous stimulus plan succeeds, it’s likely to mean a larger, more activist government for years to come. If the plan is judged a failure -- whether because the economic crisis persists or the public becomes disenchanted -- the idea of government as an active player in national life could be discredited anew.

Even as Senate Democrats and Republicans begin sparring over the bill, it remains a challenge just to understand what’s in the plan. The version passed by the House last week ran 647 pages; the Senate version, which may come to a vote this week, will probably be longer.

Here is a review of the basic elements, based primarily on the House bill:

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Jobs

In this area, the Obama administration and congressional Democrats are following a popular theory: The best offense is a good defense. Spending and tax cuts are designed to discourage job elimination as well as encourage job growth.

Aid to states, for example, could allow them to avoid cutting services and laying off workers to meet budget-balancing rules. Money spent on highway and other infrastructure projects could open jobs for construction workers and others idled by the housing crash.

Obama’s advisors calculated that the stimulus plan would create 3.7 million jobs. Simon Johnson, a former chief economist for the International Monetary Fund, said the projection might be overly optimistic, given the dysfunctional nature of today’s economy.

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“That’s not a criticism of the stimulus,” said Johnson, who supports it. “It just means you shouldn’t expect miracles.”

The Congressional Budget Office estimates 1.2 million to 3.6 million jobs would be created or saved, although the White House has not specified how many jobs it thinks would fall into either category.

If you’re one of the millions of Americans already out of work, a job created sounds better than a job saved. But experts say saving jobs aids the overall economy, thereby increasing the likelihood that unemployed people can find work.

The administration’s calculations were based in large part on projections of how heavy the job losses would be if a large stimulus package were not enacted: The Jan. 9 report said the unemployment rate would be about 7% at the end of 2010 with a stimulus, and 8.8% without one.

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Tax cuts

A big goal of the stimulus package is to get consumers spending again. So the bill tries to give most of the tax cuts to people who are likely to spend whatever they have -- low- and middle-income workers.

This year and next, the stimulus provides a $500 credit for individuals ($1,000 for couples) against their income and payroll taxes. The credit begins shrinking for individuals who make more than $75,000 a year (or, for couples, more than $150,000). Individuals making more than $100,000 a year ($200,0000 for couples) would get nothing.

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The bill also increases by $7,500 the tax credit for first-time home buyers, if they make less than $75,000 a year. It provides a new tax credit for up to $2,500 in college tuition and related expenses for people earning less than $80,000 a year.

And it would temporarily increase the earned income tax credit for the working poor and widen eligibility.

But Edward Leamer, director of the UCLA Anderson Business Forecast, doubts that many consumers will spend the money, given their anxiety over the economy’s future. He noted that most of the approximately $96 billion in tax rebate checks sent out as part of last year’s economic stimulus -- 119 million people got an average of about $800 -- was saved or used to pay bills.

“Now the situation is actually worse. Consumers are not in a spending mood,” Leamer said.

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Supporters hope the fact that tax cuts will show up as small increases in paychecks, rather than lump sums, will encourage people to spend the money.

Obama hasn’t yet urged Americans to spend, as President Bush essentially did after the Sept. 11 terrorist attacks. And Johnson, the former IMF economist, said he shouldn’t.

“I don’t think you should put moral pressure on any individual who may have a high level of debt to go out and spend more,” Johnson said. “They should do what’s appropriate for them . . . and it’s the government’s responsibility to deal with the macro-economy.”

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Infrastructure

A centerpiece of the House bill is tens of billions of dollars for ready-to-go infrastructure projects, from new roads to school repairs. Half of the highway construction must be obligated within 90 days and the other half within 180 days.

“For years, state departments of transportation and transit agencies around the country have said, ‘Give us the money. . . . We can get things going.’ Well, here is their opportunity,” said Rep. James L. Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee.

In addition to the $30 billion for highway and bridge construction and maintenance, the bill provides $20 billion for school projects, from repairs to such measures as installing solar roofs. Among other provisions: $3 billion for airport improvements; $2.5 billion for new commuter or other light rail systems; $2 billion to modernize existing transit systems; and $1.1 billion to improve intercity passenger rail service.

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The measure also provides $4.5 billion to the Army Corps of Engineers for “environmental restoration, flood protection, hydropower, and navigation infrastructure critical to the economy”; $3.1 billion for infrastructure projects on federal lands; and $1.5 billion to construct low-income housing using green technologies.

To get an idea of the scale of some of these plans: The House bill includes $6 billion to help states fund clean water projects -- almost 10 times what the program got last year.

Even so, the bill has drawn criticism that it doesn’t spend enough on infrastructure.

“Unfortunately, rather than focusing on job-creating measures like infrastructure and tax cuts -- like I think should be in there -- the Democrats have put forth legislation with billions in unwarranted and unrelated spending,” says Rep. J. Gresham Barrett (R-S.C.).

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Healthcare

The stimulus package offers the most direct benefits to Americans who have lost their jobs and their health insurance in the downturn, and to those already receiving public assistance.

Roughly 3.5 million Americans who lose their jobs will be able to receive unemployment benefits for 59 weeks, instead of being cut off after 26 weeks. And 20 million people would see a $25-a-week increase in their aid checks; the average weekly benefit is now $200.

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The government also will provide $7.5 billion more to help states assist unemployed workers who otherwise might not have qualified for aid because they earned too little or only worked part time before losing their jobs. Democrats estimate that could help up to 650,000 workers.

The bill would provide an extra month’s check -- about $450 -- for some 7.5 million poor and elderly disabled people who rely on Supplemental Security Income. Couples would get $630 more.

An estimated 8.5 million Americans would get help keeping their health insurance after losing their jobs.

The so-called COBRA law currently allows people to retain employer-based health insurance for 18 months if they pay the premiums. But that often costs more than $1,000 a month -- so much that relatively few people do it.

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The stimulus would commit the federal government to paying 65% of the cost of these premiums.

House lawmakers also want to give states the option of enrolling recently laid-off workers in Medicaid, the state-federal health insurance program usually reserved for the poor.

At the same time, millions of people who already rely on Medicaid could be spared cuts in services thanks to $87 billion in emergency aid that the House would provide to state governments. Many states already are scaling back benefits to balance budgets strained by the economic downturn.

That aid could also help doctors, hospitals and nursing homes because states have cut reimbursements for taking care of Medicaid patients in recent years.

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The healthcare industry could get further assistance from some $20 billion to promote greater use of modern information technology, although that money would flow into the economy more slowly.

As part of the Obama administration’s plans to begin overhauling the nation’s healthcare system, the stimulus plan includes $1.1 billion to study ways to increase the quality of medical care Americans get.

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Energy

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Nearly $100 billion in spending and tax breaks seeks to encourage the use of “greener” energy -- and less consumption overall.

Almost a third of the money is tagged for efficiency measures, including about $10 billion to weatherize and retrofit houses to cut electricity bills for low-income Americans, almost $8 billion to reduce energy consumption in federal and military buildings, and some $7 billion in efficiency grants for state governments to dole out.

There’s $1 billion in low-income energy assistance and hundreds of millions apiece to buy electric and hybrid cars for government fleets and to encourage the purchase of high-efficiency home appliances.

Longer-term, the plan includes $11 billion for the so-called smart grid -- technology that helps consumers reduce their electric bills and the demands on their local power supply by encouraging them to use less energy during peak hours. Another $8 billion will help fund construction of thousands of miles of new electric lines, which could make renewable energy -- from wind or solar farms, for example -- available to more of the country.

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Advocates say the energy spending will help the economy in three ways. It will create jobs, particularly in the construction sector. It will lower energy costs for many consumers. And it will serve, in the advocates’ words, as a “down payment” on Obama’s grander plans to push the nation toward renewable energy and away from oil imports and other planet-warming fossil fuels.

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Arts

It’s only a few lines in the huge package, but the $50 million for the National Endowment for the Arts has provoked an outsized controversy.

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“This is stimulus?” Rep. Mike Pence (R-Ind.), chairman of the House Republican Conference, sniffed. He and other Republicans say the spending is itself a form of art -- the Democratic art of throwing money at problems willy-nilly.

In defense of such spending, Rep. David R. Obey (D-Wis.), chairman of the House Appropriations Committee, said: “People ask, ‘Well, what does funding for the arts have to do with jobs?’ People in the arts field are losing their jobs just like anybody else.”

In the Los Angeles area, the Santa Clarita Symphony canceled its 2009 season, posting on its website the declaration “Victim of Failing Economy” and citing “declining ticket sales and a drastic decline in individual and corporate donor contributions.”

The stimulus money would be distributed to projects and activities that “preserve jobs in the nonprofit arts sector threatened by declines in philanthropic and other support.”

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During the Great Depression, “the government supported writers and theaters and artists and there was a renaissance of art in America that helped our country through those dark times,” said John Cavanagh, director of the Institute for Policy Studies, which has launched an online petition campaign to include the arts in the stimulus program.

Some Depression artwork still adorns the American landscape, and “three-quarters of a century later, we have the same crying need for artists,” he said.

Whatever the need, including the arts in the stimulus bill has given opponents a target too tempting to resist.

“I’m sure the arts have been hit hard by the downturn of the economy,” said Steve Ellis of Taxpayers for Common Sense. “But it is hard to make the argument that it is stimulative. The raw politics is that the arts spending provides a bull’s-eye for critics to ridicule and criticize the entire package.”

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janet.hook@latimes.com

Noam N. Levey, Jim Puzzanghera, Richard Simon and Jim Tankersley in our Washington bureau contributed to this report.


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