11
Feb
09

Stimulus Issues between the House and Senate

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President Obama’s Stimulus Package faces four major differences between the House’s bill and the Senate’s version; these are major factors within the overall scope of how the plan is going to work and who will benefit the most.

The four as outlined by Politico’s assessment are these:

Both House and Senate bills provide close to $87 billion in increased federal aid to help states meet their health care bills under Medicaid. But the House bill is much more tilted in favor of larger urban states, which have experienced the greatest increase in unemployment, while the Senate bill takes a more across-the-board approach that helps rural states.

The Senate bill is more tilted toward tax breaks, including a $15,000 homebuyers’ tax credit that has proven more costly than first advertised and seems sure to face challenges in the negotiations. Senators also used their bill to address the perennial problem of protecting middle and upper middle income families from the alternative minimum tax – an issue that House fiscal conservatives argue should be dealt with separately.

State and local aid is a major part of both bills, but the final round of cuts imposed by Republican moderates fell heavily on these accounts, including a $40 billion cut from the a state fiscal stabilization initiate favored by Obama.

The school construction issue remains a ticklish one since it was a cut that both Collins and Specter insisted upon in the negotiations. At the White House Monday, Obama defended the proposal, saying it would generate construction jobs and be a long term commitment to education important to the economy, In fact, the New Deal saw like-minded investments in local schools. But Collins and Specter argued that in today’s environment, it represents a new federal role in public schools and ought to be debated outside of the stimulus debate.

Complementing the Politico article is a short video produced The Center for American Progress with a video, entitled “The Truth About the Stimulus – Rescuing the Economy”, which outlines important aspects of why we need a Stimulus Package and what is currently going on to get a package in place that will work.  Here’s the YouTube video along with the write-up:

The Truth About the Stimulus – Rescuing the Economy

Heather Boushey of the Center for American Progress debunks some of the myths and falsehoods making the rounds of talk radio & the cable news programs on the stimulus bill.

This recession has the potential to be deeper and more protracted than most other recessions. The Federal Reserve can normally encourage economic activity by lowering the cost of borrowing, but these tools are not as effective as they are in more typical recessions because of the crisis facing the financial sector.

The Federal Reserve has already used up its most common ammunition to boost the economy—the Federal Funds Rate. It lowered the Federal Funds Rate to about zero percent in December 2008 from 5.25 percent in August 2007. Even so, economists are forecasting that economic growth will continue to be negative in 2009, and the end of the economic downturn is nowhere in sight.

What’s more, U.S. families began this recession with less to fall back on than in prior recessions because of existing economic weaknesses. Income growth had been weak, and Americans had more debt and fewer assets than at the beginning of prior recessions. Since consumers make up over 70 percent of the U.S. economy, the weakness of family finances will likely hamper the economy’s ability to recover quickly.

Why does a stimulus and recovery plan help?

The recovery and reinvestment package is designed to break the cycle of job loss and economic decline. An economy suffering from lack of demand needs a jump-start. The stimulus allows the government to step in and create demand by making purchases itself; it directly puts people back to work and gets money into people’s pockets so they can spend again. Businesses begin, in turn, to hire and make investments as they regain confidence that there is a market for what they produce. The downward spiral becomes an upward spiral.

Personally, I favor the House’s proposed package, since it’s my belief it puts more money under the individual state’s control and it enhances a broader spectrum of jobs for the middle and lower segments of our economy.

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