The Pros and Cons of Stimulus Packages to Revive a Slowing Economy

Every time a recession looms or the economy starts to slow down, the government seeks to restore the economy through different stimulus plans. The recession of 2008 was one such case. When the mortgage crunch hit the economy, causing widespread panic with the sudden financial plunge, the government took immediate measure to stimulate the economy back to norm and to restore confidence in the economic market. President Bush signed the Economic Stimulus Act of 2008 that awarded low and middle income earning taxpayers with a stimulus rebate check of $300.00 for qualifying children and $600.00 for adults. Any qualifying taxpayer who did not receive the stimulus check was allowed to offset the stimulus amount against any outstanding tax liabilities.

The intent of the stimulus check was to induce spending into the economy in a hope of reviving it. Since the low and middle class income earners were expected to spend such funds received on goods and services, economists projected that they were the best bet to jump start a stalled economy. Increased spending would mean increase in demand, which would bring growth to manufacturing and create jobs by extension. However, the expected impact of the stimulus checks did not result in significant economic growth but instead, produced a $165.9 billion government deficit.

There were mixed reactions and proposals as to how to resolve the new crisis that had been created (the problem of the resulting deficit). The economy was slowing down again and the government had to take action again and fast. Ben Bernanke, the Chairman of the Federal Reserve advised that a second stimulus plan could be appropriate to keep the economy in momentum. However, lawmakers were divided on the stimulus plan with others suggested tax cuts instead.

Eventually, there was no second stimulus check in 2008, as anticipated by many. When the Obama Administration took over the White House, they set out various stimulus programs under the American Recovery and Reinvestment Act (ARRA) of 2009. Under the stimulus package, the recipients of the stimulus checks were retired citizens and disabled persons, who received $250.00. Besides the rebate checks to these qualifying group of people, the ARRA opted for tax breaks for the rest of the taxpayers. The Making Work Pay Tax Credit was extended to low and middle income earners. Qualifying individuals received a credit of $400.00 and married couples that filed jointly received a credit of $800.00. The credit that was set to last through 2009 and 2010 lapsed and was replaced by the 2010 Payroll Tax Credit.

Under the Payroll Tax Credit, Social Security tax was reduced from 6.2% to 4.2% with a cap of $106,800.00. Besides the introduction of the Payroll Tax Credit, Congress decided to extend the Bush tax cuts that were set to lapse in 2010 for two more years (until 2012).

However, in May 2011, a report on jobs and unemployment showed that economic progress was not approaching as expected. Recent reports also indicate that the manufacturing sector is declining and the May 2011 Federal Reserve Report also gives discouraging numbers. There are high expectations for the government to come up with extra stimulus packages, including another stimulus check distribution plan, to try and revive the economy further. However, the anticipation of a stimulus package is now challenged by the government deficit. For now, economists, tax experts, and the public at large can only wait and see what remedy the government will put in place to try and resolve the situation.

Source by Rob L Daniel

Leave a Reply

Your email address will not be published. Required fields are marked *