SUPER-SIZED STIMULUS

January 27, 2009

President Obama pulled out all the stops when he proposed the mother of all stimulus packages, says .  He would devote $775 billion over the next two years to stimulus!  The proposed package consists of both spending and tax measures, says Kevin Hassett, director of economy policy studies at the American Enterprise Institute. 

The proposed increase in spending is a massive $475 billion, roughly 3 percent of gross domestic product (GDP).  In addition, a tax cut of up to $300 billion would amount to about 2 percent of GDP.  Traditionally, stimulus packages have focused on tax measures.  So this massive spending increase is unprecedented. 

Take the Tax Reform Act of 1969:

  • It gradually phased out a 10 percent income-tax surcharge, expanded the personal exemption.
  • Increased the standard deduction, repealed a 7 percent investment tax credit and included a handful of other reform and relief provisions.
  • It was a bit larger than 1 percent of GDP.

Even the next three measures were significantly smaller:

  • The Tax Reduction Act of 1975 contained several temporary tax relief provisions, including rebates, an increase in the standard deduction, new tax credits and a temporary increase in the investment tax credit.
  • The Economic Growth and Tax Relief Reconciliation Act of 2001 reduced marginal tax rates, created a new 10 percent tax bracket, expanded the child credit, increased contribution limits for retirement plans and reduced or eliminated the estate and gift taxes.
  • Just after 9/11, President Bush and Congress enacted additional tax relief designed to spur business investment; the legislation allowed firms to carry back losses up to five years and claim a bonus depreciation on new investments.

The Obama proposal is almost twice as large as the most significant stimulus bill, the 1969 act.  Obama also proposes a spending increase that dwarfs anything in past cycles.  One would have to go all the way back to World War II to find such drastic government action, says Hassett.

Source: Kevin A. Hassett, "Super-Sized Stimulus," American Enterprise Institute, January 2009.

For text:

http://www.aei.org/article/29175

 

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