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Second Stimulus Check For Obama 2009 Economic Stimulus Package?

Published 2/4/09 (Modified 3/8/11)
By MoneyBlueBook

Tax Cuts, Social Spending, and New Jobs - But What About Stimulus Checks?

A second economic stimulus package for 2009 is on the way and from the looks of things in the news, it appears newly minted President Barack H. Obama and his Democrat controlled House of Representatives and U.S. Senate are determined to ram the lucrative spending proposals through the legislative meat grinder no matter what, much to the chagrin of skeptical and deficit-weary Congressional Republicans.

As Congress debates the wisdom and intricate details of the current version of the 2009 economic stimulus package, it's clear that something needs to be done very soon to jumpstart and save our suffering economy before we spiral into a full blown economic depression. The unemployment rate is rising fast and everywhere you turn, there seems to be a never ending stream of unemployment and layoff news being announced everyday. The stock market has already shed more than half of its value since its peak in 2007, and billions to trillions of dollars worth of wealth have already been eliminated from the economy. Major banks and financial giants like Citibank, Bank of America, and JP Morgan Chase, once the financial pillars of our economy and the lifeblood of our credit industry, are now clinging onto U.S. government bailout money for dear life - hoping to still be in business at the end of every quarter.

With its almost limitless resources, it's clear the federal government must intervene somehow and put this broken economy and financial system back on track to prosperity. But the question is - what should be the government's role in all of this? More specially, what method should the government take to effectively jump start the economy to life again and ease the suffering on Main Street and Wall Street? Should the 2nd economic stimulus package continue to focus directly on sparking consumer spending by featuring a second round of free stimulus checks to consumers - perhaps for amounts much higher than the previous 2008 economic stimulus checks? Or should the plan this time around focus more on longer term indirect measures like job creation, infrastructure investment, and tax credits?

Current 2009 Economic Stimulus Package Focuses Less On Stimulus Checks - And More On Job Creation, Infrastructure Projects, and Tax Cuts

Before Barack Obama was elected president and during his 2008 Presidential election campaign, he supported implementing additional economic stimulus measures in 2009 - and even whispered at the rumored possibility of a second round of stimulus checks for taxpaying consumers in 2009 before tax day.

Whether a second stimulus check was a real possibility or not, the mere mention of a second round of stimulus payments and the prospect of getting more free government money certainly made my greedy ears perk up, but much of my optimism and enthusiasm were quickly dashed when Obama finally came into power. Almost immediately, he signaled a different stimulus proposal shift that favored a more multi-pronged approach of using tax cuts, tax credits, and pet projects, rather than relying on the 2008 economic stimulus check tactics of his predecessor, George W. Bush. Instead of just distributing free bailout money to the masses and hoping the funds will naturally trigger a huge surge in consumer spending activity to put the economy back on its feet again, Obama's stimulus package focuses more on middle class tax cuts and massive increases in government spending to fund various infrastructure investments, green energy projects, financial aid to states, and social education initiatives - designed to create jobs and put people back to work.

The current 2nd economic stimulus plan laid down by President Obama for 2009 is a whopping, super-sized $825 billion economic rescue package containing staggering spending initiatives and ambitious tax cuts, and sprinkled with dozens of pork-based proposals and suspect social initiatives within hundreds of pages of legislation. The current package contains $300 billion worth of aggressive construction projects designed to improve the country's���� infrastructure and create millions of new artificially generated jobs in areas like health care, renewable green energy, school upgrades and repairs, and transportation related improvements. The package also contains about $200 billion worth of state social assistance provisions designed to help keep state sponsored health and unemployment programs well funded - to offer a measure of cushion for those people who have been recently laid off due to the economic down turn. Along with the state assistance portion are other safety net type provisions to help fund and keep afloat local food stamp programs, food banks, state sponsored health care, and governmental health insurance plans for those suddenly unemployed.

The other primary feature of the current Obama economic stimulus plan is the series of tax cuts and tax credits offered to qualifying individuals and small businesses. Under the tax cut portion of the stimulus deal, small businesses suffering losses because of the economic downturn and recession would receive more favorable tax loss write off terms.

For individuals, the current 2009 economic stimulus package offers pretty generous tax cutting proposals. The plan highly favors low and middle-income working families since the idea is that these income groups are more likely to spend and invest their tax savings rather than save the money. In terms of stimulating the economy, increased consumer spending is good, and consumer saving is bad. Nicknamed the "Make Work Pay Credit" by President Obama, the proposed tax credit is supposed to reach close to 95% of workers, and benefit even working tax filers without any tax liability - typically very low income workers. Here is a basic overview of the stimulus plan's Make Work Pay Credit:

  • Middle Class Tax Credit: Under the plan, there would be a tax cut amounting to $500 a year for individuals, and $1,000 for couples. The economic stimulus would be issued in the form of a tax credit, and would be limited to those making $75,000 or less ($150,000 or less for married workers filing joint tax returns).
  • Low Income Tax Credit: For low income taxpayers, there would be an increase and expansion of the Earned Income Tax Credit to provide a refundable tax credit for low income assistance. The expansion would affect even working tax filers without any actual net tax liability - typically very low-income workers - and allow them to potentially qualify for free stimulus tax refund credits.
  • Child Tax Credit: For those who have children, a temporary increase in the child tax credit would result in larger tax refunds.

Should The 2009 Economic Stimulus Plan Be Re-Written Or Re-Packaged To Contain Major Provisions For A Second Economic Stimulus Check?

It's too bad the eventual 2009 stimulus plan probably won't contain another round of hefty stimulus check payments to ordinary consumers like the ones that were dished out last year. While the 2008 stimulus tax rebate wasn't much (only a few hundred dollars in my case), some additional government handouts in higher dollar denominations would still have been greatly appreciated by individuals like myself and put to good use. Plus, as an American consumer who embraces the virtues of capitalism, I feel I would have made a better decision for myself as to how best spend my portion of the stimulus money pursuant to what's in my own best capitalist self interest.

Overall, I think President Obama's administration is probably right in its revised efforts to focus more on job creation, offering greater tax cuts, and enhancing safety net protections to help suffering Americans survive the economic downturn for the long term. Offering greater financial assistance to struggling state unemployment programs (many on them on the verge of running out of funds), and stimulating growth with more job building projects is a proven way to stabilize the markets and improve consumer sentiment. However, I'm still a bit disappointed that the President and Congress have not explored the prospect of an enhanced second stimulus check further.

At least for now, President Obama's administration seems to have given up on the idea of using government stimulus checks en masse again to jump start the economy. Instead, Obama's advisers have indicated that they would prefer searching for viable ways to get government stimulus money into the hands of American taxpayers quickly that would not require or duplicate the tax rebate checks of last year. Apparently the $150 billion spent in 2008 in the form of stimulus payments to consumers proved to be quite an economic failure and pointless exercise of futility in terms of actually stimulating the economy to any extended degree. But perhaps the reason it didn't work properly the first time around was because too little money was given out to substantially change consumer spending habits to forcibly inject money back into the economy again (simply compare the $150 billion spent last year to the $800 billion-plus worth of spending being proposed for 2009).

Perhaps The Problem With The First Stimulus Checks In 2008 Was That They Were Too Little To Make Much Of An Impact

I have mixed feelings about the prospect of yet another around of direct stimulus checks to consumers. On one hand, I understand that there are many struggling American families getting hammered by higher living���� costs, and suffering from the ills of unemployment and layoffs. However, I'm not entirely convinced that the idea of handing out free money to families will really solve all of our economic woes and jump start the economy at its core. But yet I still wonder if perhaps we gave up on the idea of stimulus checks too early and that maybe, the concept is still workable. Maybe the amounts issued in 2008 were simply to small to change anyone's spending habits as initially intended - after all, only about $150 billion was spent in 2008, when the current 2009 economic stimulus proposal's already ballooned to a whopping $850 billion.

I know when I received my tax rebate stimulus check in early 2008, the check only amounted to a few hundred paltry dollars - not really enough for me to go on a greedy spending spree. So instead of spending it and doing my part to stimulate the economy, I ended up doing what most people probably ended up doing with their tax rebate check - putting the money in a bank and depositing it into a high yield savings account. Of course, my plans for the money would likely have been very different if the amount wasn't something low like $300, $600, or $1,200, but rather something as high as $10,000. If the stimulus check issued to me was indeed worth upwards of $10,000, I would very likely have saved a small portion of it but ended up plowing a sizable portion back into the economy by spending it on major expenditures like a new wide screen plasma TV set, new home appliances, or even a new car.

What If The Entire Economic Stimulus Bailout Package Went Towards 2nd Stimulus Check Payments? Would This Actually Stimulate The Economy?

Almost all polls among ordinary American consumers show overwhelming support for a second stimulus rebate check. After all, who would really oppose it? Who would be opposed to receiving free stimulus check money. Think the prospect of getting a second stimulus check worth as high as $10,000 as a consumer bailout is impossible? Well it's probably unlikely, but it's not out of the realm of financial or budgetary possibility, at least based on the fiscal numbers alone.

On CNN Money, a very interesting question was proposed in regards to the bank bailout and economic stimulus packages. If instead of bailing out these credit crisis-stricken banks (who probably deserve their fates due to the risky mortgage bets they greedily placed into subprime loans), we just gave all of the bailout money to taxpayers in the form of a massive consumer cash stimulus. How much would we each get if the entire current economic stimulus proposals were issued out to consumers as a second round of stimulus check payments? The second important question to ask is - would this actually stimulate the economy for the necessary extended period of time to get it going again?

To arrive at the figure, CNN Money took the total amount of the bank bailout package of $700 billion and added that to the proposed 2009 economic stimulus spending estimation at the time of $819 billion - resulting in a total bailout package of $1.519 trillion (that is quite a staggering figure). Dividing that number by 156.3 million, the total number of U.S. workers who filed federal income tax returns in 2008, that number equaled $9,718.49 per U.S. taxpayer, or roughly the equivalent of a juicy $10,000 cash bailout payment for each qualified tax payer. Now that's stimulus with oomph! With $10,000 in our pockets in the form of instant windfall economic stimulus checks, it's very likely that the tremendously high amount would be sufficient to incite a major change in spending activity than a measly $600 check ever could.���� People would probably go out and actually start stimulating the economy by buying cars, purchasing TV's, paying for college studies, and going on vacations.

As a dose of devil's advocate inspired reality though, while it's very possible that $10,000 checks in every working taxpayer's hands would probably send the economy skyrocketing, it's also possible the growth could be short lived and not actually get to the true root of our current economic problems. The massive surge in consumer spending probably won't do much to solve the lingering fundamental issues surrounding our current credit crisis, which centers around a failed banking system and a failed home mortgage lending market. But then if repairing the banks and injecting confidence back into our home mortgage and credit lending markets are our primary objectives - I'm not sure the current economic stimulus proposals by President Obama, which are focused more on tax cuts and job creation and most prominently, aggressive social spending programs - will actually accomplish those goals. At least for stimulus checks, they could be able to help alleviate some of the immediate economic suffering being felt by ordinary consumers - many of whom are fighting to stay alive, with a great deal currently resorting to desperate emergency fund measures like 0% credit card offers, balance transfers, and risky high interest payday loans.

I'm curious as to everyone's opinion on the wisdom of a second stimulus check (if it ever happened). What's your take? Would substantially higher stimulus checks of $1,000, or possibly even as high as $10,000, actually encourage you to spend the money (thereby stimulating the economy) instead of merely saving the amount or using it to pay down debt? How would your decision compare to how you actually spent your previous 2008 tax rebate stimulus check?

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