Economic Stimulus Package Overview

Following is an overview of the economic stimulus legislation proposed after September 11, 2001. Members of Congress and the Administration are currently working on "economic stimulus" legislation -- a package of tax cuts and/or spending measures designed to pull the economy out of the decline that has become much more severe since the tragic events of September 11. The need for an economic stimulus -- measures that would likely be temporary (so as not to worsen the long-term budget picture) and would increase consumer confidence and spending-seems indisputable, although some members of both parties remain concerned with the fact that more spending will quite likely return the budget, at least temporarily, to a deficit. There is general agreement that the cost of the package should be at least $100 billion (including the approximately $50 billion emergency legislation directly addressing the attacks and providing assistance to the airline industry) that has been passed. Federal Reserve Chair Alan Greenspan recently estimated that such a stimulus would need to be at least 1% of the GDP (around $100 billion), although he also cautioned against acting quickly-others believe that the package might need to be larger and that it should be implemented as soon as possible so as to have an immediate effect on the economy. The timing and the specific legislation to be included are still up for grabs. On the one hand, there is a push for accelerating the phase-in of the tax cuts passed in June and adding new tax cuts, mostly targeted to corporations, like reductions in corporate tax rates, breaks for expense and depreciation accounting, or reducing the capital gains tax. On the other hand, there is support for measures that will:
  • Address nationwide unemployment, caused by the economic slump and exacerbated by the September 11 attacks;
  • Shore up the safety net by expanding eligibility for Food Stamps, WIC, LIHEAP, and health care benefits, freeing up more resources of low and middle income Americans to boost consumption;
  • Assist low-income families by extending the full tax "rebate" to those who received no rebate or by lowering payroll taxes to increase consumption;
  • Provide federal funds to hard-pressed states so that state and local services will not be cut;
  • Improve the nation's infrastructure -- air travel, better rail service, rebuilding New York City, school construction, and the like.
Many economic experts have pointed out that spending will do more to rescue the economy than tax cuts, unless the tax cuts are particularly targeted to result in increased consumption. (It is more likely that low and middle-income families will spend resources on needs than wealthier families.) While increased federal spending is likely to put the budget back in deficit, many economists agree that the circumstances that we are currently experiencing make deficit spending a good idea and the wisest way to get the economy moving again. Almost everyone has abandoned the Social Security lockbox, but there are still some members of Congress and the Administration who are urging that we must maintain fiscal discipline and cannot go back to deficit spending. However, as long as a stimulus package can be well designed to be effective in improving the economy, it will be money well spent. With some Democrats wavering on the need for a stimulus package or wanting to delay it in the name of "fiscal responsibility," some Republican conservatives likewise concerned with reducing government spending, and other Republicans leaning towards corporate tax breaks, possibly permanent, as the stimulus solution, it is vital that others make their voices heard. For more information on proposed elements of an economic stimulus plans, as well as arguments against including capital gains or corporate rate tax cuts, see:
  • The Economic Policy Institute's paper,
  • "Addressing the Nation's Needs: A Plan for Emergency Relief and Economic Stimulus" sets forth a variety of proposals for a two-year economic stimulus plan.
  • The Progressive Caucus has proposed an economic stimulus package, which will be released on Thursday.
  • The Coalition on Human Needs has drafted a set of principles for an economic stimulus plan which should be on its website shortly
  • The Center on Budget and Policy Priorities has also released an analysis showing why corporate tax rate cuts will not provide the necessary immediate benefits to the economy.
None of us wants to be seen as advancing our own interests in this difficult time -- whether we are arguing for aiding corporations through tax cuts or assisting people through increased federal spending. Nevertheless, the events on September 11 have either directly or indirectly affected the livelihood of thousands of Americans, like the thousands of low and moderate income people who provided services and were killed in the World Trade Center and Pentagon attacks; the hundreds of people who stocked airplanes with meals and staffed restaurants at Reagan National Airport, which remains closed; the thousands of people laid off from airlines, as well as people all over the country who are losing their jobs due to the slow-down in travel and tourism. This, added to the mix of an already shaky economy, makes it imperative that we find ways to help those who have been affected, whether directly or indirectly. If this can be done to provide a strong economic boost, it should be encouraged. We should use federal resources to insure domestic security. As we are seeing, domestic security encompasses a broad range that goes well beyond airline security -- from equipping the public health service with the capacity to effectively deal with threats of bioterrorism to insuring the economic security and well-being of families; from providing supports for the victims of the September 11 attacks and their families to making sure unemployment insurance protects all eligible workers who have lost their jobs; from rebuilding New York City to repairing and constructing schools across the country; from assisting the people of New York City, Pennsylvania and the District of Columbia who were directly affected to providing federal aid to states to make sure that state services are not cut as a result of the economic downturn. The list could go on and on. An economic stimulus package can be designed which will provide immediate help to Americans; an immediate boost to the economy; and which will do no long-term harm to future balancing of the federal budget, by including measures that are temporary, or expanding benefits under programs that will be less utilized once the economy improves (i.e., unemployment insurance, Food Stamps, WIC, LIHEAP). It is better to go into a budget deficit for a few years to insure long-term prosperity.
back to Blog