Economic stimulus plan of Obama – how is it going to affect you

October 12th 2016

Right from the day I heard about the Economic Stimulus Plan of President Obama, a question was popping up in my mind – is it going to help Americans? How?

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To understand the efficacy of the Obama Economic Stimulus Plan, we have to understand the rationale behind it.

Economic stimulus - what is it? Is it necessary?

According to Congressional Budget Office,

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During economic recessions, it has been observed, that people don’t have the money to buy goods and services. If they don’t buy then demand for these products fall. Thus supply of goods and services, already produced, increases in relation to demand leading to excess supply. From the demand-supply theory of economics we know that price falls when there is excess supply of goods and services in the market. In this situation corporations make less profit. Thus, they resort to cost-curtailment through layoff of workers leading to less money in the hands of common people.

In this abnormal market situation, the only thing that can save the economy is to boost up demand. It means, give more money to people so that they can spend it to buy necessities and luxuries. Once they buy, demand for goods and services increase. Corporations try to produce more such items to meet demand. More and more workers get employed and thus they get more money in their hands to spend. Hence, the market expands. The only way through which this can be done is through economic stimulus plan.

Obama Economic Stimulus Plan – how can it help you?
Senate has approved an economic stimulus of $789 billion which is expected to generate demand in our economy to bring it back to normality. Here are some points that can help us to improve our lives.

Taxes – how can it help you?

  • Economic stimulus plan will dole out tax credit of $400 to every American worker throughout the year. So, the workers can expect an additional $13 in their weekly paychecks. Couples are entitled to get $800 through tax credit. This tax credit will become $7.70 per week in the year 2010.
  • Low income families, who don’t earn enough to pay income tax, will be given a child tax credit of $1000. In fact, poor families having 3 or more children will be entitled to get an expanded Earned Income Tax Credit.
  • Americans belonging to middle and high income bracket will not have to pay the Alternate Minimum Tax.
  • There are good news for both first-time-home-buyers and new car buyers. If you buy your first home before 1st December 2009 then you’re eligible to get a tax credit of $8000. If you buy a new car before the end of 2009, you don’t need to give sales tax on the new car.
  • Homeowners who replace air conditioners, furnaces and windows with energy-efficient models can expect a tax credit up to a total of $1500 or 30% of the cost.
  • College students/ their parents can expect a tax credit up to $2500 in 2009 and 2010. It is designed to help them to pay their tuition fees along with the related expenses.
  • If you’re receiving unemployment benefits then you don’t need to pay federal income taxes for the first $2400 you receive.

Poor – how are they going to benefit from Stimulus Plan?
It has been estimated that more than 37 million Americans are reeling under poverty. So, it required immediate action so that these poor people don’t slide down further to economic distress.

Keeping this aspect in mind some of the points included in this stimulus plan are:

  • Poor people (more than 30 million) are expected to get more food stamps than before.
  • If you’re getting unemployment check then you can expect to get an additional $25.
  • Poor American people (elderly, disabled or blind) who receive Supplementary Security Income are entitled to receive an extra one-time payment of $250.
  • 3-types of tax credits (earned income tax credit, child tax credit and refundable tax credit meant for workers) will help more than 2 million low-income people from falling to poverty.
  • Emergency fund of $3 billion will temporarily assist needy families.
  • Cash strapped states will receive an assistance of $87 billion for Medicaid, the government health program meant for the poor people. This will help these states in avoiding benefit cut-off for the needy.

Health Insurance benefits mentioned in Stimulus Plan of Obama
Many of us are going through the trauma of job loss. As we lose job, we lose our health insurance too. Under the COBRA program, workers who lose their jobs in large and medium companies continue their health insurance coverage for 18 months. But it becomes really tough for these people (who just lost their job) to manage finances because their monthly premium often crosses $1000. In order to give them relief, Obama’s Economic Stimulus has planned to contribute 65% of the total premium cost for the first 9 months. This relief package can be availed by those who were/are going to be laid off by their companies between September 2008 and December 2009. Here I want to mention that workers laid off by the small companies, having less than 20 workers, are not eligible for this relief. I didn’t like this one.
Higher Education in Economic Stimulus Plan – how can it help students?
Obama Economic Stimulus Plan is going to spend $32 billion on higher education.

Students belonging to lowest income group used to receive a maximum of $4,731 for attending college through Pell Grant. Economic Stimulus Plan has raised it to $5,350 effective from July 1 and will become $5,550 in 2010-2011. This would help the students in paying average expenditure of 3 quarters of the of a 4-year college. 800,000 students will get this Pell funding.

Concern But according to economists, Obama's stimulus package is not enough. According to Paul Krugman, 2008 Noble Laureate in Economics, Obama’s Economic Stimulus is much less than the actual fiscal stimulus required in jump-starting the economy. Only tax breaks will not create much demand in the economy. Creation of more and more jobs are necessary to bring back the US economy to normality.

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