During these difficult economic times across the country and in Michigan, much attention has been paid to the economic stimulus package currently making its way through Congress. The House version of the bill, labeled H.R. 1, was passed last week and is currently before the Senate. The package spends in three distinct ways: government purchases of goods and services, direct payments to individuals (for example, through welfare programs) and tax relief. The Congressional Budget Office estimates that the bill in its current form will increase the federal budget deficit by about $816 billion over the next ten years. Yet, even with the high cost, it is essential that the bill be passed swiftly to create jobs and boost consumer confidence.

The government will use $365.6 billion of the stimulus funds to rebuild highways and roads, increase funding for education, perform public facilities maintenance and invest in energy. This form of spending will be the most direct way to revive the economy because it has the capacity to create millions of jobs. With unemployment increasing every month, it is crucial for the federal government to keep as many people as possible on the payroll. And while some worry that this type of spending will not impact the economy as quickly as is needed, it is the only way to ensure that government money gets to the desired ends — namely, creating jobs and investing in the country’s future. Additionally, part of this fund will be allocated to the green energy sector. This will help to reduce the nation’s reliance on foreign oil, environmental pollution associated with crude oil and possible inflation risks in the future.

The second major portion of the stimulus money, consisting of about $180 billion, will seek to offer jobless benefits, Medicaid, supplemental nutrition assistance, social security benefits and other programs that transfer money directly to qualified citizens. This spending can undoubtedly help to buffer many of the problems that people on Main Street face and help them withstand these difficult times, but this policy may not be effective. This spending will not help create any new jobs and is not aimed at fixing the sources of the country’s economic problems, but this money needs to be infused into the society in order to temporarily alleviate the crisis.

And lastly, the plan includes $275 billion in tax relief. Last year, the Bush administration tried to implement a similar tax cut — the Economic Stimulus Act of 2008. But its efforts were unsuccessful in resurrecting the economy. Instead of spending their share, most people who received the tax relief ended up saving a huge portion of this additional income. This year will be no different. Most Americans will choose to save in preparation for worse times to come, and savings will not provide the vital boost that the economy so sorely needs. And while this relief unquestionably helps those who really need it to pay the current month’s bills, but what about next month’s? We need a solution that can solve our problems without simply delaying them.

In the end, raising consumer confidence is essential to help the nation pull itself out of this crisis. When consumer confidence goes up, so does consumer spending, which accounts for two-thirds of the country’s gross domestic product. Additionally, when the public consumes more goods, businesses start to stock up their inventories and increase spending once more. With greater confidence in the economy, financial markets begin to unfreeze lending, which increases liquidity for investments and business operations.

No bill is perfect, and the stimulus package is no exception. But even though H.R. 1 is flawed in a few ways, it is necessary that policymakers work together and pass this bill quickly to start the country’s economic recovery.

Valerie Bieberich and ChoonBoon Tan are co-directors of the Roosevelt Institution Center on Economic Policy.

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