Economic Stimulus Package
The US Senate has agreed a slimmed-down economic stimulus plan worth about $780bn (£528bn) aimed at boosting the US economy. President Barack Obama, who proposed the package, has repeatedly warned that the US could face an economic disaster if radical action is not taken.
Why has such a big stimulus plan been proposed?
The US economy is entering its sharpest downturn since before World War II, according to many economists.
Supporters of the measures say that without the stimulus, the downturn that began at the end of 2007 could last well into 2010. The slump has already cost three million jobs.
President Obama has made passing the stimulus package his priority, saying that millions more jobs could be lost during the recession.
As US interest rates are already approaching zero, it is clear that other policies must be considered to revive the economy.
Why has the plan been delayed?
The plan has been delayed by partisan wrangling between Democrats and Republicans in Congress, and differences between the views in the House of Representatives and the Senate as to what should be in the bill.
The first version of the bill, worth $825bn, was passed in the House of Representatives without receiving a single vote from the Republican side.
But it has been modified in the Senate, where the Democrats need Republican support to get it through.
The Democrats have a majority, but they fall two votes short of the 60 required to ensure the Republicans cannot block the bill with a filibuster.
To gain the support of moderate Republicans, Democrats have had to accept a mixture with more tax cuts and less money to help states and local governments.
And the Senate has added $35bn to stimulate house purchase and $11bn to reduce the cost of buying a car.
Many Republicans are still worried that the stimulus plan is an excuse for permanently increasing government spending.
There have been some differences of of opinion over how to expand federal medical assistance programme Medicaid.
Once the Senate gives approval to its bill, the two different versions will then have to be reconciled in a joint House-Senate committee before facing a final vote.
What is in the stimulus plan?
The stimulus plan includes a combination of measures designed to maximise its political support, including tax cuts, additional spending on infrastructure, and aid to the US states, which are having their own budget difficulties.
The plan likely to be agreed by the Senate has more tax cuts and a smaller amount of aid to states.
The earlier version approved by the House of Representatives was worth $825bn, of which one-third was made up of tax cuts, including a $500 cut in income tax for individuals.
Another big portion was money to help states close their budget gaps and avoid laying off state employees, as well as helping them pay more benefits to the less well-off.
Finally, there were additional funds to invest in infrastructure projects, such as repairing roads and bridges, improving home insulation, and repairing classrooms.
And the Senate has added $35bn in tax benefits to stimulate house purchase and $11bn to reduce the cost of buying a car.
Will it work?
According to the independent Congressional Budget Office (CBO), the stimulus package is likely to reduce the severity of the recession, although not eliminate its impact entirely.
The CBO also says that although only a portion of the stimulus will be spent in 2009, the bulk of the money will be spent by the end of 2010, when the effects of recession are still likely to be lingering.
But much will depend on the responses of individuals and government officials.
Tax cuts will be effective only if people spend rather than save the extra income they receive.
And infrastructure projects will need to be up and running quickly to make an impact on unemployment.
How will it be paid for?
The stimulus plan will be funded by borrowing money - pushing the US budget deficit, which is already projected to rise above $1 trillion this year.
The government says that all the measures in the stimulus plan are temporary and it is committed in the long term to bringing the budget back into balance.
But if financial markets become sceptical of that commitment, they could push up the cost of government borrowing.
And future generations will have to pay the borrowing costs of the additional debt for many years to come.
Article source: http://news.bbc.co.uk
