Committee for a Responsible Federal Budget

Stimulus Provisions: Extended or Not?

Apr 27, 2011 | Economics

In early 2009, lawmakers enacted an economic stimulus package to help stem the economic freefall which was shedding hundreds of thousands of jobs per month as the unemployment rate was on a quick climb towards ten percent. Regardless of the merits or size of a fiscal stimulus package, we at CRFB warned against supposedly temporary provisions lasting much longer than the stimulus dictated. Now, more than two years out, we can take a look at what has happened with some of those provisions and other stimulus measures that have been enacted since then.

Here is a list of several stimulus measures that were set to expire in 2009 (post-stimulus) and 2010:

  • Making Work Pay tax credit: Since MWP, an $800 refundable tax credit (costing $116 billion over two years) created in the 2009 stimulus, was considered one of the centerpieces of President Obama's economic plan, it seemed one of the most likely provisions to be extended beyond 2010. However, political reality came into play. In negotiating the 2010 tax deal, Congressional Republicans said they would only allow MWP to continue in non-refundable form, which would have significantly cut its size. Instead, Obama dropped MWP from the deal and the two sides agreed on a payroll tax cut instead. Verdict: Expired.
  • Other refundable tax credits: Making Work Pay was not the only tax credit contained in the stimulus. The 2009 stimulus contained numerous expansions of refundable credits. It increased the generosity of the Earned Income Tax Credit (EITC) for families with three or more children, significantly increased the refundability of the Child Tax Credit (CTC), and created the American Opportunity Tax Credit (AOTC) to help pay for college expenses. Together, these three credits cost $30 billion in 2009 and 2010. President Obama got these provisions extended as part of the 2010 tax deal, so they are currently set to expire at the end of 2012. Verdict: Extended.
  • HIRE Act: The HIRE Act was passed last year with little fanfare, although it included targeted stimulus at a cost of $13 billion. It provided an exclusion for employers of the employer side of payroll taxes for each new employee hired for the remainder of 2010 and gave them a $1,000 credit if the employee was retained for more than a year. Although a few lawmakers expressed interest in extending the HIRE Act, it received little, if any, attention during the tax deal negotiations. Verdict: Expired
  • Unemployment and COBRA benefits: Unemployment benefits were both extended and increased in the 2009 stimulus, and extended COBRA benefits were included. Since the extension only lasted through the end of 2009, lawmakers have had to extend these benefits numerous times. Initially, COBRA and UI benefits were extended in concert. However, in the spring and summer of last year, Congress had trouble passing an extension of many ARRA provisions, including these two. Provisions were repeatedly stripped from the extension bill until only UI benefits passed in July. Since then, UI benefits were extended once more in the tax deal through the end of 2011, but extended COBRA benefits have not been revived. The total for all of these extensions after the stimulus comes to about $125 billion. Verdict: Mostly extended
  • Homebuyer tax credit: Yes, the $8,000 first-time homebuyer tax credit predates the 2009 stimulus (passed in July of 2008), but it was extended through November 2009 under the stimulus package. In November 2009, Congress passed an extension of the homebuyer tax credit through April 2010 and expanded its eligibility criteria at a cost of $13 billion. Potential homebuyers rejoiced, and many economists and policy wonks sighed; however, the credit did expire as scheduled thereafter. Verdict: Extended once
  • State aid: In order to help cash-strapped states through the recession, the 2009 stimulus created the State Fiscal Stabilization Fund to avoid sharp cutbacks in state services (especially education) and increased the portion of Medicaid the federal government would pay. Combined, these two provisions cost almost $150 billion. Democrats in Congress attempted to extend state aid for most of 2010 in comprehensive extender bills (like the one mentioned above) until they finally succeeded in passing a stand-alone measure in August that created an Education Jobs Fund and extended increased Medicaid matching through June 2011. While the Education Jobs Fund is more narrow than the SFSF, we'll still count it as an extension. Verdict: Extended
  • Build America Bonds: As a way to help unfreeze municipal bond markets, ARRA included Build America Bonds, which subsidized 35 percent of the borrowing costs. The purpose of BABs was to help state and local governments finance transportation projects. Through the end of 2010, about $180 billion of BABs were issued. Because of the widespread popularity of the program, Democrats also attempted to extend it in the aforementioned stimulus extender bills and President Obama proposed to make it permanent --albeit with a reduced subsidy--in his FY 2012 budget. Obama's proposal would have cost $60 billion. However, neither proposal has been passed yet. Verdict: Expired
  • Cash for Clunkers: Cash for Clunkers was created in June 2009 to give a tax credit to car owners who traded in their vehicles for more fuel efficient ones. After the program opened in late July, it became swamped by unexpectedly high demand within a few weeks. As a result, Congress basically "extended" the life of the program by pumping in $2 billion in early August. This new money lasted Cash for Clunkers until late August, when the program expired. Verdict: Expired

The combined cost of the extensions above comes to about $225 billion (only about $100 billion if you exclude UI extensions), while the expired provisions would have cost an additional $75 billion had they been extended for a year.

If you look at ten-year cost estimates for extensions of the two provisions we could have reasonably expected to be made permanent--Making Work Pay and the refundable credits--they would come to $570 billion and $160 billion, respectively (including the cost of the extension of the refundable credits in the tax deal).

As for 2011, there are a few expiring provisions to look at.

  • State aid: As we mentioned earlier, increased Medicaid matching will expire at the end of June, although it seems unlikely that it will be passed. Presumably, the Education Jobs Fund could be given more money, which would act as an extension, but that also seems unlikely. States are already putting together their budgets assuming none of this federal money will be there (contrary to what they had done in the past few years).
  • Payroll tax cut: Although most of the tax deal is set to expire at the end of 2012, the payroll tax cut will be up for extension a year earlier. For a provision that made such a stir in December, it has gotten little mention since then. None of the recent fiscal plans that have been put out have proposed extending it. However, if, say, the unemployment rate stays flat or even rises by the end of this year, lawmakers may look to the payroll tax cut as a quick and easy way to stimulate the economy.
  • Unemployment benefits: Here is another provision from the tax deal that only got a one year lifespan. Extension of UI benefits is sure to be a contentious issue at the end of the year. The unemployment rate is likely to still be in the eight to nine percent range, so pressure to extend the benefits will be enormous (and there is significant historical precedent for doing so when the unemployment rate is that high). However, Republicans in Congress have opposed unpaid-for UI benefit extensions in the past year, making life difficult for those who advocated for them. It's unclear how the Republicans will respond with control of one house of Congress, though. This may be the centerpiece of another end-of-the-year deal.

Looking at the past and future, it seems likely that Congress and President Obama aren't going to do too bad in terms of extensions. While few provisions from the stimulus have the prospect of being made permanent, we can reasonably expect certain extenders to continue.

To see all stimulus provisions (extended or otherwise) enacted since the start of the recession, check out Stimulus.org