Economic Stimulus Package

UPDATE: February 8, 2008

On February 7, the Senate passed the economic stimulus bill by 81-16, and the House cleared the legislation by a vote of 380-34.

The new bill is similar to legislation passed by the House on January 29 (H.R. 5140). The Senate’s major changes involved extending eligibility for rebates to low-income senior citizens, disabled veterans and survivors of veterans. The legislation also includes more-restrictive language designed to ensure that undocumented immigrants receive no rebates.

Efforts to include extended unemployment benefits, renewable energy tax incentives, and low-income heating assistance failed.

NETWORK's Position on Economic Stimulus and Previous Legislative Efforts

NETWORK believes that an effective and just stimulus package should be targeted to low-income people and those experiencing poverty. Federal Reserve Chair Ben Bernanke has said that “there is good evidence that cash that goes to low and moderate income people is more likely to be spent in the near term,” and the Congressional Budget has stated that “policies aimed at lower-income households continue to have greater simulative effects.”

People in poverty or with low incomes, already in a precarious position, will be the most impacted by the economic downturn as their strained budgets

Economists agree that an effective stimulus will also include provisions adhering to “Three Ts”: Timeliness, Targeted and Temporary.

• Timeliness demands programs that work quickly.
• Targeted focuses programs on those who will spend whatever they receive.
• Temporary calls for programs that won’t demand long-term maintenance for success.

PRESIDENT BUSH’S ORIGINAL PACKAGE

In January, President Bush acknowledged that the economy was faltering and proposed income tax rebates of $800 for individuals and $1600 for couples. This plan would exclude those who don’t work, as well as 26% of working households who do not earn enough to have income tax liability. Another 16% of low- and moderate- income household do not earn enough to receive the full benefit. This proposal ignores the people needing aid the most and directs money to those more likely to save than to spend it.

NETWORK opposed President Bush’s original proposal

HOUSE/ADMINISTRATION PACKAGE

In late January, The Speaker, House Republican Leader and White House reached a tentative deal on a stimulus package with a price tag of $150 billion. Although better than the administration’s original proposal, this package is a deep disappointment for NETWORK and other human needs advocates as it does not include critical aid to states, temporary food stamp increases or extensions of unemployment insurance. These were shown to be particularly effective in previous recessions.

Package Description

Targeted. Tax rebates ranging up to $600 per individual, or $1200 per couple (graduated according to income) and a $300 credit for each child would be available to those earning over $3000 per year. Earners of less than $3000 per year are excluded, yet this group is known to spend what it receives quickly due to their great need. Some of the proposed tax breaks (for both businesses and individuals) would benefit low- and middle-income individuals. Individuals with incomes above $75,000, or couples with incomes above $150,000 would receive decreasing rebates.

Timely. The IRS states that June would be the earliest any rebates would reach tax payers.

Temporary. This is a one-time rebate.

NETWORK was disappointed with this package’s failure to target poor and low-income families who both need the assistance most and are most likely to spend the funding immediately, effectively stimulating the economy. Those who are unemployed, many seniors, those with disabilities prohibiting significant work, and those only able to find part-time, low-wage work might receive nothing. Those with the higher incomes would receive the larger rebates. With your help, we will continue to advocate for a better stimulus package.

Tax Relief That Includes the Most Vulnerable:  

• NETWORK supports tax relief through increases in programs such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), which will benefit those who need it most and are most likely to spend it. Any tax proposal must include low-income people and those experiencing poverty.

Aid to States:

• Forty-nine states have a constitutional requirement to balance their budgets. In a recession, when state tax revenues decrease, these states must find other areas to cut, and Medicaid, education and aid to local and state governments (which are also experiencing the squeeze) are the programs most frequently targeted. Nineteen states are currently predicting budget deficits for FY 2009. NETWORK recommends that the government repeat the tactic used in the recession of 2001 to 2003 of providing aid to the states through federal block grants and an increase in the Federal Medicaid Assistance Percentage (FMAP). The increase in the federal share of Medicaid and Medicare should be contingent upon states maintaining pre-recession eligibility standards. Without assistance, states may have to drop people from the Medicaid roles in a time when obtaining affordable insurance is especially difficult. NETWORK opposes tax cuts to businesses, proposed by the administration, as these would further reduce tax income to the states. Most state tax levels are tied to the levels of federal taxes. As federal taxes are reduced, these state taxes are reduced.

Unemployment Insurance (UI):

• UI has been identified as one program where funds can be distributed quickly, meeting the “timely” criterion, through a temporary expansion and increase of unemployment insurance. NETWORK supports coalition partners in advocating for an increase of $50 per week in benefits, a 20-week extension of benefits beyond the initial 26 week benefit period, and an additional 13-week extension for the chronically unemployed. We also support advocacy for the inclusion of part-time workers and workers who leave their job for compelling family reasons. As these people are unemployed, they are very likely to spend their benefits immediately. For every dollar spent on unemployment benefits, $1.64 is generated in the economy. This benefit was dropped in the House–White House negotiation on a stimulus package.

Food Stamps:

• Food stamp benefits average $1 per meal for the 27 million current recipients, 87% of whom are living below the poverty line. Like UI, a temporary increase in food stamps can be distributed almost instantly through the existing infrastructure. It, too, reaches the most vulnerable people who need assistance. As food stamps can only be spent for food, it fulfills a basic necessity and cannot be saved in a bank or invested. A temporary increase to offset the rising costs of food can prevent childhood illnesses and developmental delays associated with inadequate nutrition. For every dollar provided in food stamps, $1.73 is generated in the economy.

LIHEAP:

• Due to inadequate funding, the Low-Income Energy Assistance Program (LIHEAP), which provides home heating and cooling assistance to low-income households, was able to serve only 15.6% of eligible households in 2007. The 10% increase in funding through the Fiscal Year 2008 budget is insufficient to cover unmet need. Increased funding would be channeled directly back into the economy, providing assistance to more eligible families.

NETWORK HAS NOT SUPPORTED:

Business Tax Breaks:

• Conservatives argue that tax breaks to business allow businesses to expand, increasing spending and creating more jobs. President Bush has proposed “bonus depreciation,” allowing businesses to deduct 50% of the cost of business investments made this year. Another proposal includes reducing the corporate tax rate from 35% to 25%. As the tax code of many states is also tied to the federal tax code, some business tax breaks will reduce state revenues in a time when many states are facing deficits. (See Aid to States above.) Additionally, it is uncertain whether tax breaks to businesses would provide immediate economic stimulus.