The Obama Stimulus Plan and Its Effect on Local and State Government Term Paper

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Introduction

The economic stimulus plan is a response to the current global financial crisis that the Obama administration is hopeful will extricate the country’s economy from the spiraling downturn that it is currently in. So just how did it begin? It began when people anticipated financial problems in the future, which expectations were triggered by a number of occurrences in the economy, and this led to their cutting their spending, in turn causing businesses to lose revenues to the point that they could not meet their expenses and had to lay off workers to survive, who had no more income to spend. The cycle is repeated each time worsening. There have been conflicting reactions to the plan, while the president’s party the democrats are more or less solidly behind it, republicans are mostly opposed to it, as seen from there only being three votes from that side for the plan in the Senate and none in the house (Otterman, 2009). The president has however been applauded for his inclusion of the Republican Party views in the development of the plan, ‘good ideas are not the monopoly of a single party, and if it is a good idea, we will consider it.’, he told senate-house leaders. The action of the plan is considered to attack the core of the problem of the recession, the reduction in spending that is manifesting in all sectors of the economy, using the Keynesian approach of economic regulation that places heavy emphasis on the role of fiscal policy (William King, 2009). The plan concentrates mostly on tax cuts for families, individuals and businesses, with working families enjoying up to $1000 tax credit and individuals getting half as much. Businesses enjoy tax credit especially on jobs that they create of the preserve, as well as benefits from other business expense reductions such as tax rebates on past production mainly on capital allowances. Families are also to be cushioned against foreclosure on mortgages, and local governments that are struggling under the pressure of the crisis are to receive support from the federal government (Presidential press service, 2009) The plan has however come under fire over such issues as where the threshold income for the tax credit will be, with some quarters arguing that as many as possible people should be included in the program. Also, the large amount of spending that is characteristic of the plan, most of which will be financed from debt is seen as a danger for future generations that will not be able to pay it back, not to mention the potential inflation that is bound to accompany it, especially when combined with the federal reserve’s $3 trillion monetary policy that was announced no too long ago. In my view, the critics of the plan on account of the safety of future generations should consider that if the current crisis is not averted decisively then the generation will not even have an economy let alone have to worry about concepts like inflation. This idea is shared by Robert J Samuelson, in his article, ‘why investing in tomorrow will not help today’s economy’ (Samuelson, 2009). The plan was finally signed into law on Tuesday 17, February 2009, after having been passed in Congress a week earlier. During the signing, the president commented that it was the most sweeping recovery plan in the history of the United States.

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The stimulus plan and the local government

Local governments are the agents that are responsible for the effecting of the federal government’s policies with regard to healthcare, education and other public services, apart from also being an important employer. As a result of the crisis, many state/local governments have seen a drastic reduction in their revenues, and some are already expecting deficits in their budgets in the coming fiscal year, which means that to balance their revenues and expenditures, they will either have to increase the taxes they charge or cut down on their expenditure specifically on development projects. Both of these will have the opposite effect to what the stimulus plan aims to achieve, with the former reducing the citizens’ purchasing power thus worsening an already dire situation, while the latter leads to job losses and/or loss in potentially created jobs which has the same effect on the peoples’ incomes as the tax increases. To counter this, the plan has made a provision of $10 million dollars relief to those states that are worst hit by the crisis. This relief is however accompanied with a warning, the president declared in a meeting with mayors in his White House office on February 20th, that the plan is to be executed in the most transparent manner possible, and those mayors and local governments that fail to account for any monies granted to them and used in the wasteful project will be called out (China Daily, 2009).

In his new approach, the president seeks to assure his citizens that his plan is effective by providing information about the working of the plan and having timely updates so that due diligence and accountability may be observed, which in my view will go a long way in restoring the people’s confidence in the economy and get them spending again. The plan has affected many sectors within the local government, chief among them, being education. According to the Virginia Education Association, the state education sector would have had to institute drastic spending cuts and worker layoffs both for teaching and non-teaching staff, but the bill seems to have come to the rescue. It is anticipated to provide an average of about $870 per pupil within the next two years, an injection that is projected to either create or retain teaching and instructional totaling not less than 300,000 (Virginia Education Association, 2002). $2 billion has also been allocated by the plan to assist in the control of crime and boosting the criminal justice system. This is to be done through the Edward Bryne justice assistance grant program, which funds will be used for a wide range of activities concerning crime prevention and law enforcement including among others witness services such as protection, police training, education programs, correction facilities and programs. The president said on the grant, ‘by keeping police officers’ jobs and assisting municipalities to fight crime, the money granted will at the same time save the economy and provide protection for citizen’s (Recovery.gov, 2009). The effectiveness of the aid that local governments will receive has been met with skepticism as many people view it as inadequate. The governor of Pennsylvania Edward Rendell commented that even with the money received from the plan; no state will be able to solve all its budgetary problems. Reasons for this ineffectiveness have been advanced and the most dominant one seems to be politically oriented. President Obama, in his style of inclusion, finds himself between a rock and a hard place as he tries to placate the conservatives by checking the spending in the plan and at the same time satisfying the liberals with a large enough stimulus. The result is largely viewed as being a lose-all situation as the plane will not generate enough momentum for the economy to sustain itself, and when this happens another plan will meet heated objection in congress (credit Write Downs, 2009).

The plan and the states of New York, New Jersey

New York state government expects that the state will receive $24.6 billion from the stimulus package over the next years, to be boosted towards such state activities as security, healthcare, education and some amount reserved for fiscal relief. This grant is a major relief especially n the projected budgetary deficit of $13 billion over the coming financial year. Some of the greatest benefits that the state is poised to gain from the package are the mass transit projects that also fall under the federal version of the plan that is to be upgraded. Consistent with what was mentioned earlier, the governor acknowledges that the funds to be received alone do not represent a full proof plan to salvage the economy of the state and consequently some adjustments will have to be made in the spending patterns (New Daily, 2009) The governor in his letter to the president that was written together with governors of other states recognized that the state of New York is at a very precarious position amidst the crisis, being the global financial services hub and also the home of Wall Street, the country’s securities trading platform, which was among the first to feel the impact of the recession owing from its sensitivity to confidence among investors. The budgetary deficit that was mentioned earlier is the largest in the state’s history and threatens the ability of the state to provide fundamental services to the citizens and thus the need for federal support could not be more emphasized (Reuters, 2009).

In New Jersey, there is more support than there is opposition to the plan according to the Associated Press, in Nj.com (2009), which highlights how much faith the people in the state have in the country making it out of the crisis, riding on the back of the president’s stimulus plan. This sentiment is however not entirely held by the state’s administration, which although projects the total support that is expected under the plan to be about $6.4 billion, the governor of the state Jon S. Corzine has been warning that the financial turmoil that the state is in may be too overwhelming for the support to effectively counter. Other key figures in public service, as well as academia, echo the governor’s warning, suggesting that although the grant will ease the problem, it is skeptical that it will turn around the situation completely and result in a budget surplus. This is in the wake of the state’s worst revenue fall in history, totaling about $2.8 billion. The governor reiterated that the way forward, however painful would have t be through tax cuts, which have already generate a lot of heat from worker’s unions. The governor is under severe pressure suggesting such measures as furloughs for workers, with the unions rejecting them on the grounds that the workers spend their pay too rapidly and disrupting their work cycle, could have dire consequences for them (Dunstan, 2009).

Bibliography

  1. Credit Write Downs ‘Obama takes middle road on tax cuts that leads to nowhere’ 2009.
  2. Dunstan McNichol, The new York Times,World Wide 2009. Web.
  3. King, W, ‘Fiscal policy’ 2009.
  4. New York Daily News ‘Gov. David Paterson: Obama stimulus plan will bring New York State $24.6’ .
  5. Presidential press service, ‘Barrack Obama’s Plan To Stimulate The Economy’.
  6. Recovery.gov ‘Fighting Crime and Improving Justice System’.
  7. Reuters, 2008 ‘Obama stimulus plan’. Web.
  8. Robert J Samuelson, Newsweek magazine, ‘why investing in tomorrow will not help today’s economy.’
  9. Sharon Otterman, The New York Times, ‘Web.
  10. The China Daily Newspaper, ‘’ Web.
  11. The Virginia Education Association, ‘The obama stimulus plan makes sense’.
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IvyPanda. (2021) 'The Obama Stimulus Plan and Its Effect on Local and State Government'. 17 November.

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IvyPanda. 2021. "The Obama Stimulus Plan and Its Effect on Local and State Government." November 17, 2021. https://ivypanda.com/essays/the-obama-stimulus-plan-and-its-effect-on-local-and-state-government/.

1. IvyPanda. "The Obama Stimulus Plan and Its Effect on Local and State Government." November 17, 2021. https://ivypanda.com/essays/the-obama-stimulus-plan-and-its-effect-on-local-and-state-government/.


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IvyPanda. "The Obama Stimulus Plan and Its Effect on Local and State Government." November 17, 2021. https://ivypanda.com/essays/the-obama-stimulus-plan-and-its-effect-on-local-and-state-government/.

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