The American Recovery and Reinvestment Act is the federal stimulus law that President Barack Obama signed on February 17, 2009, directing an estimated $840 billion in spending and tax relief at the worst downturn since the Great Depression.1Congressional Budget Office. Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output in 2014 Roughly $663 billion of that went out as direct federal spending and about $173 billion as tax reductions, with outlays peaking near $235 billion in 2010 so the money would land while demand was weakest. Unemployment was climbing toward 10 percent when the law passed, and the package tried to do three things at once: keep people on payrolls, cushion the fall for those who had already lost jobs, and invest in roads, grids, schools, and health records that would still matter after the recession ended.2Federal Reserve History. The Great Recession
What the Law Was Trying to Do
The full title of Public Law 111-5 lays out the priorities in order: job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal stabilization.3Government Publishing Office. Public Law 111-5 – American Recovery and Reinvestment Act of 2009 Rather than a single lever, Congress used many small ones. Some money moved through the tax code as credits and withholding changes. Some moved through existing programs like Medicaid and unemployment insurance. Some was competed out as new grants. And some financed construction contracts that had to meet domestic-sourcing and prevailing-wage rules.
Money That Reached Individuals and Families
Making Work Pay Credit
The headline tax provision for workers was the Making Work Pay credit, worth up to $400 for individuals and up to $800 for married couples filing jointly.4Internal Revenue Service. Making Work Pay Credit Instead of one-time checks, the government delivered it as smaller payroll withholding across 2009 and 2010, on the theory that slightly larger paychecks every two weeks would keep money circulating in the economy.
Expanded EITC and Child Tax Credit
ARRA added a new Earned Income Tax Credit tier for families with three or more qualifying children, raising their credit rate to 45 percent instead of the 40 percent that applied to smaller families. It also lifted the phase-in threshold for married joint filers by $5,000, easing the EITC’s marriage penalty. For the Child Tax Credit, the law dropped the minimum earned-income threshold for the refundable portion from $12,550 to $3,000, which pulled many more low-income families into eligibility for a cash refund even when they owed little federal income tax.
American Opportunity Tax Credit
ARRA replaced the older Hope Scholarship Credit with the American Opportunity Tax Credit, worth up to $2,500 per eligible student. The math is 100 percent of the first $2,000 in qualified college expenses plus 25 percent of the next $2,000, and up to 40 percent of the credit (a maximum of $1,000) is refundable. The credit phases out for single filers with modified adjusted gross income above $80,000 and joint filers above $160,000.5Internal Revenue Service. American Opportunity Tax Credit Congress later made the AOTC permanent.
COBRA Premium Assistance
Losing a job during the recession often meant losing health coverage at the worst possible time. ARRA subsidized 65 percent of COBRA continuation premiums for workers involuntarily terminated after September 2008, cutting a typical family’s annual cost from about $13,500 to roughly $4,725. The subsidy started at nine months and was extended to fifteen months in December 2009.6U.S. Treasury Department. COBRA Insurance Coverage Since the Recovery Act – Results From New Survey Data Workers paid 35 percent of the premium; employers advanced the rest and recovered it as a credit against federal payroll taxes.
Help for States and the Safety Net
State revenues were collapsing while Medicaid rolls were growing. ARRA temporarily increased the Federal Medical Assistance Percentage by 6.2 percentage points from October 2008 through December 2010, meaning Washington picked up a larger share of every state’s Medicaid tab and of foster care and adoption assistance. Without it, many states would have cut eligibility or benefits at the exact moment more residents needed coverage.
The State Fiscal Stabilization Fund distributed roughly $48.6 billion in formula grants to help states avoid layoffs of teachers and other public employees, in exchange for commitments to improve data systems and support struggling schools.7U.S. Government Accountability Office. Department of Education – State Fiscal Stabilization Fund Program A separate $4.3 billion competitive program, Race to the Top, went to states willing to raise academic standards, tie student achievement data to individual teachers, and intervene in low-performing schools.8Federal Register. Race to the Top Fund The program was controversial, but it prompted policy overhauls in several states that outlasted the grant money.
Business Tax Breaks and Clean-Energy Grants
On the business side, ARRA extended 50-percent bonus depreciation, letting companies deduct half the cost of qualifying new equipment and software in the first year rather than spreading the write-off across its useful life. Small businesses with average gross receipts of $15 million or less got another tool: the ability to carry net operating losses back five years instead of the usual two.9Internal Revenue Service. Business Provisions of the American Recovery and Reinvestment Act A firm that had earned money from 2003 through 2007 but lost money in 2008 could apply that loss against the earlier profitable years and pull back taxes already paid, turning paper losses into cash when bank lending had frozen.
Section 1603 let commercial renewable-energy developers take direct cash grants from Treasury in place of investment tax credits. That mattered because a tax credit is worthless to a company with no taxable income, which described much of the energy sector during the downturn. Eligible technologies included solar, wind, geothermal, biomass, fuel cells, and hydropower. Treasury ultimately paid out more than $26 billion across nearly 110,000 clean-energy projects.10U.S. Department of the Treasury. 1603 Program – Payments for Specified Energy Property in Lieu of Tax Credits
Infrastructure, Broadband, and Health Records
ARRA funded “shovel-ready” construction projects meant to put unemployed workers on payrolls quickly. Highways and bridges received the largest share of transportation money, followed by upgrades to public transit fleets and rail. Energy spending covered a smarter power grid, weatherization for low-income homes, and efficiency retrofits at federal facilities.
The law also tackled the digital divide. Through the Broadband Technology Opportunities Program and the State Broadband Initiative, the National Telecommunications and Information Administration oversaw about $4 billion in grants for broadband infrastructure, public computer centers, and adoption efforts in underserved areas.11NTIA. BTOP/SBI Archived Grant Program About
Tucked inside ARRA was the Health Information Technology for Economic and Clinical Health Act, known as HITECH, which pushed the medical system toward electronic health records.12HHS.gov. HITECH Act Enforcement Interim Final Rule Doctors and hospitals that demonstrated “meaningful use” of certified EHR systems received financial incentives, while providers who stayed on paper faced reductions to their annual Medicare payment updates starting in 2015.13Centers for Medicare and Medicaid Services. 2018 Medicare Electronic Health Record Incentive Program Payment Adjustment Fact Sheet – Hospitals HITECH also tightened HIPAA enforcement, adding tiered civil penalties for health data breaches. The meaningful use program has since been rolled into the Merit-Based Incentive Payment System under the Medicare Access and CHIP Reauthorization Act of 2015.14Office of the National Coordinator for Health Information Technology. Legislation Overview
Buy American and Prevailing Wage Rules
ARRA money came with strings. Section 1605 prohibited the use of recovery funds on public construction projects unless the iron, steel, and manufactured goods were produced in the United States.15eCFR. Buy American Requirement Under Section 1605 of the American Recovery and Reinvestment Act of 2009 All manufacturing processes for iron and steel had to take place domestically. Components of other manufactured goods could originate abroad as long as final manufacturing happened in the U.S.
Three narrow exceptions allowed foreign materials: when the domestic product was not available in sufficient quantity or quality; when using domestic materials would raise total project cost by more than 25 percent; or when the head of the relevant federal agency found that applying the rule would conflict with the public interest. Any waiver had to be published in the Federal Register within three business days.16Acquisition.GOV. Subpart 25.6 – American Recovery and Reinvestment Act – Buy American Statute – Construction Materials
Section 1606 applied Davis-Bacon prevailing wage requirements to every ARRA-funded construction contract over $2,000. Contractors and subcontractors had to pay at least the locally prevailing rates set by the Department of Labor, and even partial ARRA funding pulled the entire project under Davis-Bacon, including portions paid with other money.17U.S. Department of Agriculture. Application of Davis-Bacon Wage Rate Requirements to Projects Funded With American Recovery and Reinvestment Act Funds
Oversight and Transparency
ARRA created the Recovery Accountability and Transparency Board with authority to audit and investigate any agency or contractor receiving stimulus funds.18Federal Register. Recovery Accountability and Transparency Board Primary recipients had to file quarterly reports under Section 1512 within ten calendar days of each quarter’s end, detailing spending, project descriptions, and jobs created or retained.19eCFR. Reporting and Registration Requirements Under Section 1512 of the American Recovery and Reinvestment Act of 2009 The data fed a public site, Recovery.gov, that let anyone track where the money went. Recovery.gov has since been taken offline, but ARRA spending data remains accessible through USAspending.gov.
What the Results Were
The Congressional Budget Office tracked the law’s effects year by year. At peak impact in mid-2010, CBO estimated ARRA raised real GDP by between 1.7 and 4.5 percent, lowered unemployment by 0.7 to 1.8 percentage points, and increased employment by between 1.4 million and 3.3 million people.20Congressional Budget Office. Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output Those wide ranges reflect genuine uncertainty about how much of the recovery would have happened without the act.
By 2014 the stimulus had largely run its course, raising GDP by somewhere between a negligible amount and 0.2 percent. Looking further out, CBO projected a slightly negative effect on output after 2016, because the borrowing used to finance the stimulus crowds out some private investment over time, with no lasting effect on employment.1Congressional Budget Office. Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output in 2014 Whether $840 billion was the right amount remains debated. The structural legacy is easier to see: the American Opportunity Tax Credit became permanent, HITECH pushed the country’s medical records onto digital systems, and the transparency machinery built for Recovery.gov became a template for tracking federal spending afterward.