Committee for a Responsible Federal Budget

Stimulus Proposals in the President's Budget

Feb 11, 2010 | Budgets & Projections

In the budget released last week, the President outlined his vision for additional economic stimulus. Included in his proposal was $76 billion over 11 years (including $29 billion in 2010) to extend existing stimulus measures on the tax side, $90 billion ($45 billion in 2010) to extend spending stimulus measures, and another $100 billion ($24 billion in 2010) to allow for new, yet-to-be-specified stimulus measures.

Among the more significant measures on the tax side include a one-year extension of the Making Work Pay tax credit, a temporary extension of COBRA subsidies, and "bonus depreciation" for businesses. Included on the spending side is a temporary extension of the temporary increase in Medicaid payments to States and a further extension of unemployment benefits.

Interestingly, the budget does not specify what would be included in the remaining $100 billion (although for scoring ease, it assumed half tax cuts and half spending increases). One option might be the bipartisan bill recently introduced by Senators Baucus and Grassley, which would provide funding for highway and infrastructure projects, extend unemployment benefits, and offer payroll tax breaks for firms hiring new workers. Another might be some version of the Jobs for Mainstreet Act which passed the House and included a significant amount of infrastructure investment, in addition to extending many of the ARRA provisions which are addressed in the President's Budget.

Stimulus Proposals (billions)
  2010 2010-2020
Tax Provisions    
Extend Making Work Pay tax credit in 2011* $0 $61
Extend COBRA health insurance subsidies $3 $9
Tax credits for investment in certain property used for advanced energy manufacturing $0 $4
Extend temporary expensing for small businesses $1  *
Extend temporary bonus depreciation $22 $2
Allow States to accept grants in lieu of housing tax credits $2  *
Tax Sub-Total $29 $76
Spending Provisions    
Extend Unemployment benefits $31 $49
Extend enhanced Medicaid matches for states $0 $26
Suspend food stamp time limits $0  *
$250 Economic Recovery Payment $13 $12
Enhance TANF emergency fund and grants $1 $4
Spending Sub-Total $45 $90
Allowance for other jobs initiatives $24 $100
Total Stimulus $98 $266

*Costs between -$500 million and $500 million.

In total, the President's stimulus proposals would total $266 billion -- around 30% of the cost of the ARRA. This is on top of the ARRA extensions that have already been enacted, which we estimate to have cost about $66 billion. 

While more stimulus may indeed be appropriate, we worry that policy makers may continue to renew many of these provisions well past the time they are no longer needed, adding significantly to our already enormous debt burden. However, these temporary extensions aren't our only fear.

CRFB warned last year when the stimulus was enacted that there would be enormous pressures to not only extend some of the ARRA measure, but even make them permanent. Doing so is a violation of the principle that stimulus should be timely, targeted, and temporary.

Yet we predicted last January that the Making Work Pay tax credit, the EITC, Pell grants, American Opportunity tax credit, COBRA subsidies, and child support enforcement match were at risk of being extended or made permanent because the President included them in his campaign promises.  It turns out we were right. The Making Work Pay tax credit and the COBRA subsidies are being extended temporarily, as explained above. The others, in this budget, are made permanent.

ARRA Policies Made Permanent in the President's Budget (billions)
Expand earned income tax credit+ $30
Expand child tax credit+ $83
Pell Grants+ $187
AMT patch (index 2009 parameters to inflation)+^ $659
Extend American opportunity tax credit $75
Reform and extend build America bonds   *
Extend child support enforcement incentive match $1
Total $1,035
Total Excluding AMT Patch $376

+Included, in part or in full, in the Administration's "current policy baseline"
^Policy makers have enacted AMT patches for years, beginning long before the ARRA.

In fact, the budget includes over $1 trillion to extend policies which were enacted under the ARRA. In fairness, the majority of this money comes from continued AMT patches -- something which was "current policy" long before it was put into the stimulus bill (which is why it should not have been there in the first place). However, even when this is excluded, the budget spends at least $376 billion to make permanent ARRA measures. Worse still, many of these policies are included in the baseline, hidden away as "current policy" when they in fact are anything but. (Following our blog post on this, the Wall Street Journal called the ARRA 'The Eternal Stimulus'.)

If the President's budget were enacted into law, and we exclude future AMT patches, what was originally supposed to have been a $787 billion bill will result in closer to $1.4 trillion of spending and tax cuts. And even that assumes policymakers do not make further extensions to any number of temporary stimulus measures.

This is why we have argued repeatedly that stimulus should stimulate, not push an agenda. And to keep policy makers honest, we believe that all future stimulus spending should be fully offset – even if these offsets occur in the out-years. Otherwise, the medicine meant to heal an unhealthy economy can become addictive, and ultimately do far more harm than good.

Read Further Analysis of the Budget Here