Impact of stimulus to be felt in stages

by James Oliphant and Janet Hook

Just about anyone connected with the $789 billion economic stimulus bill has agreed that it won't begin to fix the nation's broken economy over night. But just how soon can Americans begin to feel its benefits, and when will we know whether it's working?

After all, the scale of the legislation is so huge and its provisions so diverse that its effects could potentially be felt in almost every corner of American society -- from small businesses and major industries to individuals in their varied roles as workers, taxpayers, and consumers.

And that means the impact of the bill, which is expected to win final approval by Congress today, will be felt almost immediately -- and for months and years to come.

Like a time-release capsule, the plan's provisions will move into the nation's economic bloodstream in stages. A majority of Americans should see more money in their pockets quickly, as a result of tax cuts designed to reduce withholding and fatten take-home pay. Investments science, basic research and moving toward the so-called "green economy" may not yield sizable benefits for years, if not decades.

Indeed, the mammoth bill's potential for jump-starting the economy continued to be debated Thursday. And even though Democratic leaders had announced broad agreement on a compromise blueprint that was acceptable to a handful of GOP Senators whose support was crucial for final passage, congressional staffers were still working furiously on Thursday to fine-tune exact language of the bill.

By late Thursday evening, members of the House and Senate had yet to see a full finished copy of the legislation. Once President Obama signs the bill, probably sometime next week, the clock will start running.

The Congressional Budget Office said the legislation would deliver its largest benefits to the nation's total gross domestic product by the end of this year, with the effect dropping some in 2010 and disappearing altogether by 2013.

The bill, the CBO said, would have its greatest impact in terms of adding jobs next year, when, it said, some 3.6 million jobs could be created. But, the report added, the package could have a positive effect on employment for the next five years, perhaps leading to the creation of as many as 11.6 million jobs during that span.

House Republicans said Thursday that the bill will only produce 3.46 million jobs, "500,000 fewer than President Obama promised," said Michael Steel, a spokesman for John Boehner (R-Ohio), the House minority leader.

Whatever the number, here is what people can expect to see in the first wave of effects:
Most workers will notice a modest difference in their paychecks almost right away. Those who make less than $75,000 a year (or married couples that make $150,000), will receive a $400 tax credit.

It will last two years and it probably won't feel like all that much. Instead of mailing out checks, as the Bush administration did with its stimulus plan last year, the government will withhold a little less--leaving average workers with perhaps $8 extra per week.

Those sums were ridiculed by Republicans and others, who said that the bill's benefits for taxpayers are wildly inflated.

Still, said Clint Stretch, managing principal for tax policy in Washington with Deloitte, "that cash has to go somewhere." He said it was a "pretty direct" form of stimulus and "nobody has to do anything to get it."

Those out of work will see unemployment checks immediately increase by $25, up from the average benefit of $200 a week. And eligibility for benefits would last 46 weeks, up from 26 weeks. That money, too, will go to people who are most likely to spend it quickly.

Health insurance subsidies for unemployed workers could also have a direct impact, but even with the federal help many may find it hard to afford continued coverage. Jobless workers must arrange with their employers to continue the coverage and must pay the premiums themselves -- a hefty outlay even with the government now picking up 65% of the cost for nine months for individuals earning up to $125,000 a year ($250,000 for couples)..

First-time home-buyers can also reap immediate benefits. In lieu of government cash, they can claim an $8,000 tax credit if they buy a home before the end of year.

Similarly, those who buy a new car by the end of the year will be able to deduct the cost of the sales tax.
And many parents of college students will be able to deduct more of the cost of their tuition on next year's tax return (as long as they are paying it, of course).

At the same time, small businesses will benefit from a provision in the bill that will allow them to carry back their 2008 losses for five years, leaving them with more capital to spend. Some critics question the impact of this and other business-friendly tax breaks because, in a recession, business may not have enough tax liability to take advantage of the deductions.

Deloitte's Stretch was disappointed that final negotiations on the bill resulted in fewer businesses being able to take advantage of the carry-back provision. He said he had large clients with their refund returns ready to go, "sitting waiting for the president to sign the bill."

Following along after the first-stage benefits are less direct provisions that could give a rebound lift to the economy later this year.

The federal government will deliver $54 billion in aid to cash-strapped states, with some of the money available to prop up state budgets, help maintain services and keep employees on the job.

A large chunk of funds will be available for upgrading school buildings.
Other monies could help keep teachers and day-care workers on the payroll. That alone could save or create hundreds of thousands of jobs nationwide, Democrats say.

At the same time, counties, cities, and municipalities that receive a chunk of stimulus money will green-light so-called "shovel-ready" projects, using workers and equipment that otherwise might go unused. The U.S. Conference of Mayors has projected that such projects could yield 1.6 million jobs by the end of next year.

However, while economists generally applaud quick-acting stimulus measures, they are largely short-lived. Workers hired on for these projects could be let go if the economy doesn't turn around.

Spending on energy-efficiency could also benefit the economy long term as well as mid-term, with more than $10 billion in the bill would fund weatherization and other energy efficiency upgrades for homes and federal buildings.

Environmentalists and energy experts say that spending carries a duel benefit: It creates jobs for workers who assess and retrofit buildings. And it should reduce energy bills for years to come, saving consumers money and reducing the nation's overall energy bill.

"The Obama recovery plan's investment in home weatherization and government building efficiency should promptly create jobs, and save energy, " said Daniel Weiss, the Director of Climate Strategy at the Center for American Progress.

Then there are the longer-term investments, where the immediate stimulative effect of the bill is less clear--and the benefit may lie more in the area of strengthening long-term economic development than in job creation now.

The legislation calls for $20 billion to upgrade the nation's electric grid and $8 billion for high-speed rail projects.

There are also large increases in research and development, including $1 billion for NASA and $3 billion for the National Science Foundation.

The National Institutes of Health too is a major beneficiary of the bill. It will have $10 billion flowing in to use for biomedical research.

The concrete results of such spending are hard to predict. If extra money for NIH results in medical or scientific breakthroughs, the benefits to the economy as well as to patients could be huge.

Such effects are uncertain and rarely quick. But economists say that such investments are vital to maintaining long-term prosperity, especially in the modern world.

Jim Tankersley of the Tribune's Washington Bureau contributed to this report.