April 15, 2020 | Last Updated on: June 29, 2023
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The Cares Act, the economic stimulus package passed by the United States House and Senate is the largest stimulus package since The American Recovery and Reinvestment Act (ARRA), the fiscal stimulus program passed by Congress and signed into law by President Obama in 2009.
It’s purpose: Prevent an economic collapse due to the coronavirus pandemic.
ARRA was the stimulus bill response to the Great Recession, which was precipitated by the mortgage crisis and near collapse of the United States financial system.
The Cares Act is a $2 trillion economic recovery program for individuals, corporations, small businesses, healthcare institutions and local governments.
The $831 billion ARRA was more limited. It provided support to families and small businesses. Corporations, especially big banks, received economic recovery aid through the Troubled Asset Recovery Program (TARP).
Here are overviews of ARRA and the Cares Act, along with bottom line (BL) commentaries on each.
ARRA included seven components.
ARRA stimulated economic activity by encouraging consumer spending. It provided $260 billion in tax cuts, along with expanded unemployment benefits.
Bottom line (BL): ARRA tax relief wasn‘t as effective as it might have been. It would‘ve been better if people received cash. Many were unaware of the tax cuts. Some felt unemployment benefit expansion was ineffective.
However, tax credits for homebuyers and new car sales tax deductions helped boost industries impacted by the Great Recession.
ARRA provided public works funding.
BL: Data shows infrastructure spending created jobs.
The stimulus package included $17 billion in renewable energy tax cuts and $5 billion to weather-proof homes.
BL: These incentives created new jobs in an emerging sector.
ARRA provided funding for health care.
BL: ARRA laid the foundation for the Affordable Care Act. It addressed recession-related health care issues.
The relief program included money for education.
BL: Data shows ARRA created jobs in education.
The assistance program included money for science and technology.
BL: The funds created science industry jobs.
ARRA allocated $54 billion for small businesses.
BL: Most business owners felt loan guarantees and tax rebates didn’t do enough. Most never saw a business increase from consumer stimulus initiatives.
ARRA might have tried to do too much, which watered down its effectiveness.
However, ARRA was successful overall. The Great Recession ended in July 2009, five months after it was signed into law by President Barack Obama. The economy grew by 1.5 percent in 3Q2009 after contracting by 4.4 percent in 1Q2009. In the 18 months after ARRA was passed, the economy added 4.1 million jobs. Compare that to the millions of unemployment insurance claims made during the Great Recession.
ARRA set the foundation for a decade of economic growth.
The act also has seven components.
The bill includes aid to give people economic security.
Bottom line (BL):
Payments from the Cares Act should have a bigger impact than ARRA’s reduced tax withholdings and credits. People are more likely to spend actual cash. Is it enough to make them feel secure?
Enhancements to unemployment benefits will help workers survive a historic period of job loss.
The Cares Act supports small businesses.
BL: Small businesses are heavily impacted by COVID-19. Coronavirus aid will help them keep their employees and reopen when the pandemic is over.
The act allocates $500 billion in loans and other federal government aid for corporations. They must pay loans back and are subject to disclosure, oversight and other requirements.
Airlines, devastated by travel restrictions, will receive $58 billion to cover employee wages and benefits.
The Cares Act also includes a tax credit for closed or distressed businesses to keep workers employed.
BL: The federal government is providing coronavirus aid to corporations. It avoids TARP issues by placing restrictions on fund use.
America’s health care system is strained. Coronavirus aid eases the burden.
BL: Congress and the White House are allocating a significant amount to fight the health care battle. More may be needed.
The Cares Act funds meal programs for low-income people.
BL: Access to nutritious food will help people stay healthy during the coronavirus pandemic.
Local governments are hard hit by COVID-19. The Cares Act allocates almost $340 billion to help.
BL: Governors, including New York’s, believe support from Washington, D.C. is inadequate and must be increased.
The bill includes support for students and people with loan debt.
BL: Assistance programs allow students to stay focused on their educations.
Policy makers learned from ARRA and TARP. The Cares Act provides relief to people and small businesses that need it. It limits how corporations can use it to prevent abuse.
The Cares Act is a first step toward helping the United States survive the coronavirus pandemic. Expect more to come.
