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Stimulus II -- Big Vote Today, Here's What's in It

May 27, 2010 - by Donny Shaw

(Note: post updated to reflect new CBO numbers.)

To most liberals and many economists, the first $787 billion economic stimulus bill (H.R.1) didn’t do enough to promote job growth and general recovery given the depth of the recession caused by the 2008 financial crisis. The national unemployment rate, for example, is still at 9.5%, and in areas that were hit especially hard by the recession, the unemployment rate is still going up.

So, the Democrats have prepared a second, smaller stimulus bill of about $127 billion in new short-term spending called the American Jobs and Closing Tax Loopholes Act of 2010, and they are planning to hold a vote on it in the House on today. Late on Wednesday night, the bill was revised. Here’s what’s in the final bill.

The single largest item in the bill is the single most stimulative form of government spending — the bill would extend unemployment insurance benefits until the end of November 2010, at a cost of about $40 billion. This provision is designed to help the long-term unemployed who have exhausted their state-based benefits and are in tiers 1-3 of the federally funded extension. The bill would not add a fifth tier of benefits, but would extend the filing deadline to November 30 for people in tiers I (20 weeks), II (14 weeks) and III (13 weeks for states with unemployment rates above 6%) whose benefits are expiring and are looking to move into the next tier of benefits. The current filing deadline for these extended federal benefits tiers is May 31. The bill would also extend COBRA health care benefits for unemployed workers until November 30.

The next largest item in the bill isn’t as directly stimulus related. It would extend a scheduled 21.2% cut in Medicare reimbursement to doctors until January 2012. The scheduled cut is the result of the Balanced Budget Act of 1997, which says that the amount of Medicare dollars paid to doctors will be automatically cut when that cost outpaces inflation. But these automatic cuts have been delayed repeatedly by Congress since 2003, hence the gigantic accumulated cut doctors are facing now.

The third largest item is infrastructure spending to spur job creation, which totals more than $25 billion in the bill. This will come in the form of an extension of the Build America Bonds program from the original stimulus bill, which let states and local governemnts borrow from the federal government at lower costs to finance infrastructure projects, and new state highway repair funds.

There’s a lot more in the bill than I can list here. Other stimulative provisions include small business tax credits, a new summer jobs program, tax cuts designed to help the middle class, expanded disaster relief programs, tax incentives to spur clean energy development, and much more. You can get a good overview and summary documents at this page from the Ways and Means Committee.

To pay for some of this new spending, the bill would raise taxes on hedge fund managers. This is a big revenue source that Congress has been eyeing for years, but that so far the hedge fund industry and their lobbyists have been able to avoid. Currently, hedge fund managers’ income is taxed at the lower capital gains tax rate rather than the regular income tax rate, which is higher. It creates situations where billionaires end up paying a lower tax rate than their secretaries. As a concession to the industry, which has been lobbying hard for years against the tax increase, the Democrats decided to chnage the wasy only the first 60% of hedge fund manager income is taxed; 40% would still be taxed at the lower rate. It would also close a corporate tax loophole that allows American companies to operate offshore without paying taxes to either the U.S. or the foreign country, and it would prevent some high-earning service professional from avoiding Social Security taxes by calling themselves an S corporation.

All in all, the new revenue raisers would bring in about $43 billion over the next ten years. That means that about $87 billion of the bill’s new spending would be not be paid for, though it would have a stimulative effect on the economy.

Will it pass? As the New York Times reports, the main thing keeping some Democrats away from the bill is the fact that it is not fully paid for. “We have put together a wonderful bill, and every piece in it can be justified as good public policy,” freshman Rep. Gerald Connolly [D, VA-11] said yesterday. “But it is not paid for. Until somebody shows me a path for this being paid for, I am a no.” Expect the vote to be a tight one with dozens of Blue Dog Democrats bucking their party and little or no Republican support.

If it does pass the House today, it will go to the Senate immediately for a quick debate and a vote before Congress leaves on Friday for Memorial Day recess. Several programs in the bill, including the extended unemployment benefits, are scheduled to expire on May 31 unless the bill become law.

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