Stimulus Provisions Updated: Extended or Not?
The economic stimulus package enacted in 2009 is now four years behind us. According to recovery.gov, $796 billion has been disbursed as of the end of April, with $505 billion in the form of spending and $290 billion in tax cuts. CBO's latest estimate of the cost of the stimulus through 2019 is $830 billion. While some pieces are still going on, in particular food stamp spending and infrastructure spending, most provisions have run their course or were set to expire a few years ago. At the time of passage of the 2009 stimulus, CRFB warned that many of these temporary provisions could last longer than originally stated and permanently add to future deficits.
To be clear, extending or making these provisions permanent is not necessarily inappropriate given the economic situation and/or priorities of lawmakers, especially if the extensions are paid for. Still, it is worth examining what has happened to some of the main provisions of the stimulus. In one of our previous posts in April 2011, we covered many of the measures which had been set to expire already.
Back then, we found that the results were mixed. The HIRE Act (tax breaks for expanding payroll), Build America Bonds, Cash for Clunkers, the homebuyer tax credit, extended COBRA benefits, and the Making Work Pay tax credit all had been allowed to expire by then (although MWP was replaced by the payroll tax cut). Meanwhile, other refundable credit expensions, unemployment benefits, and state aid had all been extended at least partially. The refundable credits and unemployment benefits were generally deficit-financed, while the state aid extension was fully paid for over ten years.
Incidentally, the fiscal cliff deal this past winter conveniently presented policymakers a window of opportunity to address some of the provisions which had been extended and were set to expire in 2012. Below is a list of some of the stimulus measures which were previously extended or enacted in 2010:
- State aid: The original 2009 stimulus package created the State Fiscal Stabilization Fund (SFSF) to avoid cutbacks in state services such as education and Medicaid payments. It was scheduled to expire in 2010 but a portion of it was extended through 2011 in the form of the Education Jobs Fund and additional Medicaid money, which together had a more narrow scope than the SFSF. These provisions were not extended further. Verdict: Expired
- Unemployment Insurance benefits: Since our last blog, UI benefits have continued to be extended, with the latest one lasting through the end of this year (costing $30 billion). However, UI has not been kept in its original extended and expanded form as passed in 2009. For one, the July 2010 extension declined to extend the 2009 stimulus's increase in benefit levels. Then in the February 2012 extension, the maximum number of weeks a person could collect UI was reduced from 99 weeks to 73 weeks. Verdict: Mostly extended.
- Earned Income Tax Credit: The 2009 stimulus increased EITC benefits for working families with three or more children and further increased benefits for married couples beyond what the 2001 tax cut already did. The fiscal cliff deal extended these provisions through 2017 at a cost of $17 billion. Verdict: Extended.
- Child Tax Credit: The stimulus made the child tax credit more refundable by allowing refundability to extent that a person's income exceeded $3,000, as opposed to the previous $10,000 threshold. This provision was extended in the fiscal cliff deal through 2017 at a cost of $51 billion. Verdict: Extended.
- American Opportunity Tax Credit: The AOTC aims to help lower-income families pay for college by allowing qualifying families to claim up to $2,500 each year. The AOTC replaces a previous higher education credit, the Hope credit, which was not refundable. It also has been extended through the end of 2017 at a cost of $67 billion. Verdict: Extended.
- Payroll tax cut: The payroll tax cut, originally enacted in the 2010 tax cut, reduced the employee portion of the payroll tax by two percentage points for 2011. In two separate pieces of legislation, it was ultimately extended through the end of 2012. While many Democrats favored extending it in the fiscal cliff deal, it was ultimately allowed to expire. Verdict: Extended once, then expired.
- Business expensing: Starting with the 2008 stimulus, businesses were allowed to write off the cost of certain equipment quicker than normal, with a 50 percent deduction in the first year. This provision was extended in the stimulus and then expanded to a 100 percent write-off for 2011 in the 2010 tax cut (with it reverting back to 50 percent in 2012). The expensing was extended through 2013 in the fiscal cliff deal at the 50 percent level. Verdict: Extended
|Extended or Expired?|
|Making Work Pay credit||N/A||Expired and replaced||Expired|
|EITC and CTC Expansions||N/A||Extended||Extended through 2017|
|AOTC||N/A||Extended||Extended through 2017|
|UI Benefits||Mostly extended||Mostly extended||Mostly extended through 2013|
|COBRA Benefits||Extended twice, then expired||Expired||Expired|
|Homebuyer tax credit||Extended once, then expired||Expired||Expired|
|State Aid||Partially extended||Partially extended||Expired|
|Build America Bonds||N/A||Expired||Expired|
|Cash for Clunkers||Expired||Expired||Expired|
|Payroll tax cut||Not yet enacted||Enacted and extended for 2012||Expired|
|Business expensing||Extended||Expanded and extended||Partially extended|
Combining these observations with the ones we made two years ago, it appears that many of the 2009 stimulus's provisions have been allowed to expire (though some later than originally envisioned). Also, extended UI benefits are likely to be allowed to expire at a point at which the unemployment rate has fallen far enough (this has been the case in past recessions). A more cloudy case is the one of business expensing, which could become permanent but is generally seen as a temporary stimulus measure. We will have to see how lawmakers decide to treat the refundable credits, which will expire at the end of 2017.
Whether these expirations/extensions were appropriate given the timing is debatable. However, when the economy is back on truly solid ground, policymakers should certainly either make the remaining temporary provisions permanent, allow them to expire, or replace them with an alternate policy. Keeping them on a temporary basis is not a good solution.