A stimulus package is a government injection of funds to an economy that is deemed as ailing. This occurs when the economy has been on a down turn and is trying to revive its various economic sub- sectors. A stimulus package tries to boost the people’s purchasing power and provides various incentives to the business community. It takes the form of tax cuts and tax reliefs. The government creates more job opportunities, avails more money to the public sector which in turn offers cheap services to the citizens. A stimulus package comes into play when the economy is at a down turn. At this situation it is expected that there is low consumption from the public. The government must empower the public so as to increase personal consumption.
The stimulus package largely involves tax cuts. This is to mean that about thirty to forty percent of the package involves the lowering of taxes. The government through the package reduces taxes workers pay per year. The government also takes care for the self employed who are supposed to file their returns and hence can be allocated what is appropriate to them. The aim of the tax cuts is to increase the amount of money one has or rather the disposable income. With the increase of money at hand or the disposable income, the purchasing power of that person is likely to increase. The fact that the disposable income will increase, the purchasing power of the public will as well increase. Most of the economies are driven by consumption. Consumption means that people are able to purchase goods and services being offered in the economy. The business community is able to steer the economy as the public is able to take up what is produced. (Jannson 32). The stimulus package will also cater for the people depending on the number of children a household has. This implies that a family with a larger number of children will get a larger tax cut. This has been provided so as to cater for the needs of children in the hard time of economic recovery.
The government will therefore cut the workers’ taxes; they will have more money for consumption use. Once people are able to purchase more or their personal consumption increases, the economy is able to start getting on its feet again due to the revitalization in the business community. This is the reason the government involves tax cuts to its workers or generally to the public. The private sector is largely involved in the country’s economy and has the largest share in driving the economy. The government collects taxes from the private sector and it is worthwhile noting that the private sector contributes the largest revenue to the government.
There has been a tax relief on the housing sector; for all home purchases, the package has incorporated a reduction on the requisite taxes. The government has worked out a plan to relieve first-time house buyers by lowering taxes. This is because the housing industry is experiencing the worst recession in recent times. To save the housing industry from imminent collapse a plan had to be worked out to mitigate the effects of the recession where an injection plan was put in place by the government to revive the industry. First time buyers are being encouraged to purchase houses through this program where more people will be able to afford houses even with the recession. (Jannson 32)
The incentive to the housing industry is likely to make more people purchase more houses. In turn as more people gain the ability to purchase houses, the industry is likely to regain its growth rate thereby contributing to the overall economic growth. Real estate development has been one of the most important sectors in the economy this is because it plays a major role in the economy because it has the capacity to employ a huge number of people. Unfortunately when the industry experiences any negative impact it affects the economy severely increasing unemployment. The stability of the Real Estate development is quite crucial as it includes suppliers of building materials, the contractors, surveyors as well as the agents and the buyers.
The stimulus package has as well been involved in the development of education. The government has worked on a plan to make college education more accessible. This has been done by increasing tuition scholarships by certain margins. The duration for the scholarship has also been increased from the ordinary two years to four years. This will make college education accessible to more students especially those that have been hit hard by the economic recession. The plan to make education accessible acts as a potential future benefit. It ensures that the employment sector will have readily available trained personnel to sustain the various economic sectors. Higher education is important especially in an advanced economy which requires competent professionals. The government foresaw that a large number of people or students would not afford to pay for college education which would obviously have future adverse effects (Jannson 32). The government through the stimulus package will also aid technological education in colleges. Through strengthening of the technological courses, the colleges will be able to offer technological courses that will make positive impact to the economy. Advancement in computers and other communication tools is a priority and the government’s aim is to be above other industrialized countries in technological advancement. Technological advancement comes with cost efficiency and growth in an economy is attributed to the efficiency of its mechanisms.
The stimulus package is designed to impact greatly as per Obama’s promises to his commitment to the concern of global climate change. The package includes the policy of clean energy. Over the past few years, the global politics have involved the issues of global warming and climate change. The industrialized countries are being forced to control pollution generated from the many manufacturing factories that churn out tons of pollutants. There is also an outcry for the countries to stop excessive exploitation of the resources. Another heated issue has been the ongoing deforestation programs that are used to source tree products for the factories. The countries are on a policy of going green by taking appropriate measures to protect the environment (Jannson 32). The Copenhagen meeting which is being held in December 2009 will be greatly focusing on the adverse environmental pollution as a result of human activity. The government therefore, through the stimulus package enhanced the usage of clean energy. The package lowers taxes on energy efficient electronics and electrical appliances. By this policy, there will be better energy usage and energy sources will be maintained which will therefore reduce the chances of pollution. There are also incentives for all house accessories that are related to improving home energy-efficiency such as air-conditioners and water heaters.
The government further seeks to give incentives to purchases of hybrid cars. Hybrid vehicles are able to burn up most of the carbon contained in the automobile fuel. Through this, very little carbon is released to the atmosphere. The government through the package is funding the research and development of alternative fossil energy. This will help avoid excessive reliance on one source of energy because the growing population will also require more energy than before to sustain it. The package has also funded the cleaning up of nuclear energy sites. (Coy 36)
The stimulus package is also taking care of the health care sector. This will mostly favor those who are affected by involuntary unemployment and those who are disadvantaged, who’s health care costs will greatly be subsidized. They will also be offered subsidized health insurance which will be done through the COBRA program. All those affected when companies retrench are also given the opportunity to register with the program so as to benefit from the stimulus package. The stimulus package has also been projected to upgrade health care and has financed the health information and communication technology department of the sector. This will enhance research in the sector and also improve service delivery to the public. The government policy to offer cheap health care is paramount as most of the members of the public will be able to access the services (Webster 307).
The unemployed have also been taken care of by the stimulus package through the provision of the unemployment insurance which will cater for their basic needs. The package has also taken care of job training which will help the unemployed to get the basic skills which may enable them to acquire jobs in future. The welfare benefits for the unemployed have also been catered for by the stimulus package. (Coy 36)
The stimulus package will also fund the development of infrastructure. This includes the expansion of highways which will enhance the transport industry. Development of transport is paramount to the growth of the economy. The business community will benefit as the transport costs will be cut which will make them flourish which will in turn have a positive boost to the economy. The package will finance building and repair of bridges and other key infrastructural facilities. Besides the development of highways, the package will also see that the railway system has been improved. This will include expansion of the railway line to improve fast movement from one state to another. Movement of goods is expected to raise once the road and rail transport has been improved. Trading between different states is expected to increase due to the accessibility of various trading points and citizens will be able to seek jobs from various cities around the country despite the long distances covered.
The package will also aid the purchase of transit equipments such as buses. This will greatly decongest the cities because commuting from home to work places and vice versa will become more efficient thereby private motor vehicles will not be of much use. Another positive aspect will be the reduction of environmental carbon pollution from motor vehicles fumes in major urban areas. This will definitely help in the ongoing fight for cleaner environment.
The package will also finance clean water projects. The project’s main aim is to provide water that is suitable for domestic use. Such projects will include making of water reservoirs to store water for the people in the rural and urban areas. The package will also include the distribution of the clean water to the residential areas. (Coy 36)
The stimulus package is also to fund various technological advancements and will include funding research work that needs to be undertaken. There will be incentives to those companies conducting research work on particular technological advancements. The package will aid the upgrading of information and communication in the technology sector bringing efficiency in the general communication sector. The economy is expected to grow when information flows within the economy is smooth. Data management and data transfer is important in any economy as the various business transactions are handled when there is the exchange of information where business firms can easily and efficiently transact business leading to growth in the economy (Jannson 40).
The stimulus package will also aid NASA in its various research programs. The space exploration agency will be funded to enhance its space research and will also aid in developing its space ships. The funds will also benefit the agency in upgrading the various systems that they use in development and space research. (Coy 36)
There has been mass injection to the economy by the stimulus package where business firms in the economy are expected to regain their normal operating status as they get such incentives. The business firms are expected to employ the available labor resource and many people who lost their jobs are likely to be absorbed by these companies. As companies recover from the economic recession, it is expected that their productivity will increase as well. They will require more labor so as to help maximize their profits. Those affected by the economic recessions will also benefit from the stimulus package by getting tax waivers for their unemployment compensations which will help them adapt to the economic environment. (Webster 306). It is expected that by the year 2010 the economy will have been able to absorb back those people who had lost their jobs.
Despite the intelligent crafting of the stimulus package, it has been met with lots of skeptism and criticism for some of its weaknesses. From a past experience, the stimulus package endorsed after the Great Depression was not effective to the growth of the economy as had been anticipated. The economists have no great hope for the growth of the economy using the stimulus package. They observed that an economic stimulus package is a burden to the government and especially the tax payers (Jannson 40).
The economics have argued that the economic stimulus package was only short term remedy and that it will not help much in the growth of the economy. It was argued that economic reforms were the most important thing if the economy was to get back to its feet again. Making of sound reforms to the economy was more relevant than a stimulus package which was only to stimulate economic activity (Webster 306).
The stimulus package did not involve much funding for the infrastructural and educational sector because most of the packages were only tailored on tax cuts. If much of the package was allocated to infrastructural development, long term effects would eventually be visible. Expansion of highways and railways would make economic sense in the long run even though it would be costly in the initial stages. These are some of the positive effects that would be felt by future generations rather than the short term tax cut measures (Jannson 39).
The stimulus package will have effect on output that depends on decreasing demand for goods and services. However these effects will eventually disappear. In the long run it is hoped that the economy will generate its full potential output. This point where full potential is realized is dependent on 3 salient factors that include the labor supply, Supply of productivity and stock of productive capital.
Due to the heavy burden of the stimulus package, the government will heavily borrow from the public. The government’s bond market will outdo other financial markets. The public will therefore, to take the opportunity, withdraw money from the banks and invest in government bonds. This will lead to a situation where there will be no sufficient ‘loanable’ funds. This will lower the level of private investment which may lead to low productivity in the private sector. This will in aggregate lower the GDP. It is estimated that the GDP may go down by the year 2019 due to this effect (Webster 307).
The stimulus package is seen as a double edged sword to the tax payers. This is true because the tax payers will have to repay for the tax cuts. Most of the tax payers will not realize any benefits in the long run. The government debts will rise due to the interests accrued and the tax payers will have to pay for all the accrued interests. A number of tax payers will feel an increase in taxes in the short run.
The stimulus package made ‘targeted and temporary’ tax cuts (Jannson 42). This does not favor entrepreneurs who require incentives in terms of untargeted and permanent tax cuts. The stimulus package is not in any way accompanied with necessary reforms that would bring productivity to business organizations. Business firms are at the risk of paying the government debts in form of taxes.
To sum it up, the stimulus package will bring short term benefits such as increase in employment and also increase the level of productivity. Development of infrastructure and education might as well be relevant in the long run. However the main problem is that the stimulus package does not fund much of the development in the infrastructure and education sector. The government in most cases avails cash so as to increase demand in the market. The aggregate problem in the stimulus package is the crowding out of private investments which may be dangerous to the economic status of the country. (Webster 306)
Coy, Peterson. Business week, Issues 4069-407. California.McGraw-Hill.2007. pp 36 47
Jannson, Michelle. ““The Stimulus Package and the US Economy.” The economist, Volume 385, Issues 8561-8564, Economist Newspaper Ltd.California. 2008. P 32-43
Webster, Obama G. The postmodern coup: making of a Manchurian Candidate. WashingtonProgressive Press Series.2008 pp 307-309