ARRA, Its Details, With Pros and Cons

man spending ARRA tax cuts on yellow peppers

The act's goal was to put $787 billion into the pockets of American families and small businesses.   That would boost demand and instill confidence. It was a necessary follow-up to President George W. Bush's 2008 plan, the Troubled Asset Recovery Program.   TARP ended the 2008 financial crisis by bailing out large banks.  

In 2015, the Congressional Budget Office reported that Congress added to ARRA spending in subsequent budgets. It raised the total cost to $840 billion. Most of its impact occurred by 2014.  

Key Takeaways

ARRA's Components

ARRA had seven components. Here are the details of each.

Immediate Relief for Families

ARRA stimulated demand by sending $260 billion to families. They received the funds through tax cuts, tax credits, and unemployment benefits. Most of the funds were delivered in the first two years.

Here are the specifics:

Modernized Federal Infrastructure

ARRA created jobs by funding shovel-ready public works projects.

This is the most cost-efficient way to create jobs. One billion dollars spent on public works created 19,795 jobs according to a UMass/Amherst study.  

Increase Alternative Energy Production

This funding jump-started the alternative energy industry in America. It demonstrated that the federal government supported clean energy.

Expanded Health Care

This component subsidized the greater health care costs that were created by the 2008 recession.

Note

ARRA required hospitals and doctors to computerize medical records.

That simplified the exchange of patient medical information, such as tests, among doctors. Computerized medical records facilitated the 2010 Affordable Care Act.

Here's what ARRA spent on health care:

Improved Education

Here's what ARRA spent on education:

Education spending is the second-best way to create jobs, according to the UMass study. One billion in federal spending creates 17,687 jobs.  

Invested in Science Research and Technology

Funding broadband infrastructure in rural areas also helped pave the way for computerized health records needed for the ACA.

Helped Small Businesses

Small businesses drive 70% of all new jobs. ARRA allocated $730 million to help small businesses with tax deductions, credits, and loan guarantees.   These included:

Pros and Cons of ARRA

The American Recovery and Reinvestment Act had something for everybody. But it was almost too complicated. Many people were unsure whether they, in fact, received a tax break. Polls showed that many others thought their taxes had increased instead of decreased.  

Small businesses complained that loan guarantees and tax deductions didn't help them. That's because the orders just weren't coming in.

Others criticized the focus on education or helping low-income families. Some said that extended unemployment benefits removed the incentive to look for work.

Note

The success of ARRA is in the numbers.

The recession ended in June 2009, four months after Congress passed the Act.   Economic growth immediately improved. It expanded 1.7% in the third quarter of 2009 after shrinking 6.7% in Q1 2009.   In the first 18 months after ARRA passed, the economy added 2.4 million private sector and 1.7 million government jobs. That was after losing more than 500,000 jobs a month during the recession.  

In 2009, the Council of Economic Advisers predicted that ARRA would increase employment by 6.8 million full-time jobs by the end of 2012.   In 2015, the CBO estimated the stimulus had actually created between 2 million and 10.9 million jobs between 2009 and 2012. Most of the increase occurred by 2011.

ARRA Compared to CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was a $2 trillion stimulus package passed on March 27, 2020. a subsequent.   Like ARRA, Congress provided financial aid to families and businesses.

Unlike ARRA, it was in response to the COVID-19 pandemic. The government had recommended businesses shut down and residents stay at home to prevent an unmanageable spread of the new coronavirus.

Unlike ARRA, the 2020 act was not in response to a recession. Instead, it was in anticipation of one. Here's what ARRA allocated compared to CARES:

Benefit ARRA CARES
Direct Payments $260B $290B
Expanded Unemployment Extension only $260B
Small Business Loans $730B $377B
Health Care Providers $128B $127B
Infrastructure $85B $0
Alternative Energy $22B $0
Education $109B $0
Research $18B $0
State and Local Governments $0 $150B
Emergency Lending $0 $510B
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