By Matthew Benjamin and Julianna Goldman
Feb. 17 (Bloomberg) -- President Barack Obama today signs into law one of the largest pieces of legislation in U.S. history, a $787 billion behemoth that combines massive tax breaks and government spending designed to resuscitate the moribund U.S. economy.
The size of the new law and its speed moving through Congress -- it was approved within weeks of Obama’s inauguration -- place it among the most significant legislative accomplishments since President Franklin Roosevelt overhauled the U.S. government in his first 100 days, historians and political analysts say.
“We have plenty of big, complicated pieces of legislation that come down the pike, but this bill is unprecedented,” said Stuart Rothenberg, an independent political analyst in Washington.
The package contains roughly $300 billion in tax breaks for individuals and businesses, more than $250 billion in direct aid to distressed states and individuals, and almost $200 billion to modernize and improve the nation’s infrastructure. Obama, who will sign the legislation in Denver, the city where he accepted his party’s nomination in August, said it will save or create about 3.5 million jobs.
The measure is just one part of Obama’s three-pronged strategy to revive the U.S. economy. His administration has already revamped a $700 billion financial rescue, passed under George W. Bush, designed to stabilize shaky banks and restart lending to businesses and consumers. Tomorrow Obama will announce extraordinary measures to stem record home foreclosures and arrest the rapid erosion in housing values.
FDR Comparison
“No one’s going to have 100 days like Franklin Roosevelt again, with 15 major pieces of legislation,” said Allan Lichtman, a political history professor at American University in Washington. “But leaving aside that impossible comparison, Obama’s accomplishments stack up very well.”
Even with the size of the stimulus and other measures, Obama, 47, is seeking to temper expectations about how quickly the economic slump can be brought to a conclusion.
“This historic step won’t be the end of what we do to turn our economy around, but rather the beginning,” Obama said in his weekly address on Feb. 14. “The problems that led us into this crisis are deep and widespread, and our response must be equal to the task.”
Payroll Tax Cut
The stimulus plan’s costliest item is a $400 payroll tax cut for individuals and $800 for couples, at an overall cost of $116 billion. Retirees, disabled veterans and others who don’t pay payroll taxes will get a $250 payment. The bill also includes a one-year fix to the alternative minimum tax, costing $70 billion, which will prevent some taxpayers from having to pay extra income taxes this year.
There are $10 billion in breaks for businesses, as well, including faster write-offs for equipment purchased in 2009 and incentives for companies that produce and invest in renewable energy resources such as solar and wind power. A business tax break pushed by the U.S. Chamber of Commerce will ease near-term tax burdens on companies and buyout firms that restructure debt without entering bankruptcy.
The stimulus plan provides a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband Internet access, Pell college tuition grants, high-speed rail projects and scores of other programs.
Debt Limit
To fund itself, the bill raises the nation’s debt limit to about $12 trillion. The cost of the legislation will be spread over 10 years, increasing the budget deficit by $185 billion in fiscal 2009, which ends Sept. 30, according to estimates by the Congressional Budget Office. The biggest impact, about $400 billion, will come in fiscal 2010.
“There are few times members of Congress are asked to vote for a bill of this size,” said Stan Collender, a former House and Senate Budget Committee analyst. “This is not something you see every day in American history.”
Another unprecedented aspect of the bill is new restrictions on Wall Street pay. They go well beyond the $500,000 cap announced by Obama last month, by restricting bonuses for senior executives and the next 20 highest-compensated employees at companies that receive or have received more than $500 million from the Treasury Department’s Troubled Asset Relief Program. Bonuses and other incentive pay at companies that took less money will be limited on a sliding scale.
Curbing Bonuses
That may curb bonuses at companies such as Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co., each of which received $25 billion from TARP, though the administration will have roughly a year to determine how the pay restrictions are implemented. It’s unclear what will happen at companies like Merrill Lynch, now a unit of Bank of America Corp., which awarded $3.6 billion in bonuses in December.
The Obama administration has expressed reservations about the new pay limits on concerns they will prevent some banks from participating in government stabilization programs or make others rush to exit them, potentially hampering efforts to unfreeze credit markets. So far TARP has injected $195.6 billion in more than 330 U.S. financial institutions.
Pay caps aside, Obama’s administration is touting the bill’s historical significance.
“We’ve passed the most comprehensive sweeping legislation as it relates to economic activity, ever, in a three-week period of time,” White House Chief of Staff Rahm Emanuel told reporters last week.
Energy Tour
Obama will sign the bill at approximately 1 p.m. Denver time, just before the close of the financial markets. Before the signing ceremony at the Denver Museum of Nature and Science, Obama will tour the solar panel instillation on the building’s roof, highlighting the $37.5 billion investment in energy.
The stimulus measure’s size and scope are matched only by the crisis it was designed to address.
Denver’s unemployment rate is 6.3 percent, up from 4.4 percent one year ago. Home values in the Denver-Aurora area are down 19 percent compared with a year ago, and 1,023 homes were foreclosed in the month of December, according to data provided by the White House.
The U.S. labor market has lost 3.6 million jobs since the recession started in December 2007, while the unemployment rate has soared to 7.6 percent from 4.4 percent two years ago, with many economists expecting it to rise to near 10 percent.
Companies from Wal-Mart Stores Inc. to General Motors Corp., have announced cuts to their payrolls, underscoring the broad reach of the recession. FedEx Corp., the second-largest U.S. package-delivery company, said it will eliminate 900 jobs in its freight unit.
Working in Phases
Economists say the best scenario is that the stimulus plan will work in phases, first providing relief to cash-strapped consumers, businesses and states, followed by a job-creating lift from the spending on roads, schools, utilities and public transit.
“The hope is, with the stimulus, that we actually stop losing jobs by the end of this year,” said Josh Bivens of the Economic Policy Institute, a Washington research group aligned with labor unions.
Still, he and other economists say the recession is likely to grow worse through 2009. All of Obama’s programs will need to work in concert, they say, to bring it to an end.
The economy and the financial system need help in tandem, said Alan Blinder, a Princeton University economist and former vice chairman of the Federal Reserve. “If we don’t do both, we’re cooked.”
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