On February 13, 2009, the U.S. House and Senate passed a compromise $787 billion fiscal stimulus package, entitled “American Recovery and Reinvestment Act of 2009″ (H.R. 1).  President Obama is expected to sign the legislation on February 16, 2009.  The question for any economic recovery is: When and how will the stimulus package be spent?

Tax breaks account for about one-third of the package. Aid for states, the unemployed, and access to healthcare  account for another third.  Labor, health and education take up another 8 percent.  Infrastructure spending comes in just under that amount, which is a key issue for those excited about the prospects for companies engaged in business linked to infrastructure construction.  The original package proposed by the House had infrastructure spending as 15 percent of the total.  So the end result is a smaller slice of a smaller pie.  This does not necessarily mean that one should avoid investing in infrastructure companies, but certainly expectations must be lowered.  Also, with the inclusion of protectionist measures, one should also be aware of what percentage of revenues the company derives from overseas sales.  Finally, energy and water, an effort known as “the green agenda,” accounts for approximately 7 percent.

One criticism lobbed at the package is that it is not large enough.  This blog has noted in previous posts the size of recovery packages from previous economic and war-time recessions in terms of gross domestic product (GDP), which is the total annual output in goods and services for a country (click here for post with charts).  The size of the package is not unprecedented at 5.4 percent of GDP.  By comparison, the total cost of Franklin Delano Roosevelt’s “New Deal” was nearly 57 percent of GDP.

Analysts at RGE Monitor have put together the following summary of some of the highlights of the recovery package:

For Households: $185 bn in payroll tax relief for low-income households ($400 for individuals, $800 for families). $59 bn for unemployed workers including $27 bn to extend unemployment benefits for 20 weeks (33 weeks in states with high unemployment rates), food stamps and expansion of health care access. Broaden child tax credit. Around $2-3 bn to give out $8,000 in tax credit for first-time home purchases, $2 bn to allow car buyers take a tax write-off on their interest payments and $70 bn in AMT relief for middle-class. A one-time $250 payment for senior citizens, veterans and disabled. For firms: $98 bn in tax credits for firms to hire workers and invest in new equipment. For States: $44 bn for “stabilization fund” to help cash-strapped states avoid budget cuts. States and local govts might also get grants  for education, Medicaid, transfer payments. Other spending: $109 bn for Medicaid and other health programs. $9 bn in education spending. $29 bn for highway construction, $7 bn for broadband, $11 bn for electricity, $15.6 bn for tuition grants, $8 bn for rail projects, $9.5 bn to improve energy efficiency. Other incentives for , clean-water projects, housing assistance, renewable energy tax incentives (incl. wind, solar), technology, telecom. The plan has “Buy American” provisions for construction projects given they do not violate WTO rules and trade agreements.

[SOURCE: U.S. Congress Passes the Fiscal Stimulus Package: Will It Alleviate the Recession in 2009?, RGE Monitor.com]

One of the improvements in the package from the original proposed by the House is that more of the package will be spent sooner.  In the original package, the spending was spread over a 10-year period, with much of it coming in and after 2010.  According to the Director of the Congressional Budget Office, Douglas W. Elmendorf, the compromise bill would impact spending as follows:

CBO estimates that enacting the conference agreement for H.R. 1 would increase federal budget deficits by $185 billion over the remaining months of fiscal year 2009, by $399 billion in 2010, by $134 billion in 2011, and by $787 billion over the 2009-2019 period (combining both spending and revenue effects). The table below summarizes the estimated budgetary impacts of the conference agreement legislation.