An effective economic recovery package should use government dollars to stimulate the economy quickly and lay the foundation for long-term growth.
Certain actions, such as filling the widening hole in state budgets or increasing the food stamp benefit, stimulate the economy quickly and have a potent job-creating effect. Investments into infrastructure, energy, health care, and education have the dual advantage of creating jobs now and laying a foundation that can be used by the private sector for years to come.
Tax cuts, unless they are targeted to working Americans who are most likely to spend the money quickly, have a much weaker stimulative effect and create far fewer jobs per dollar than public investment or fiscal relief because people are more likely to save the money or use it to pay off debt rather than spending it. Corporate tax cuts have also been shown to be relatively ineffective as a short-term stimulus.
There is not an unlimited amount of money to be spent on the most effective methods; we can not, for example, spend $850 billion expanding food stamps. A smart package balances fiscal relief with a variety of effective investment options, while steering clear of options that offer little reward for the investment.
This calculator allows you to design your own stimulus package, noting which priorities are most effective at creating jobs, and which are less so. (Dollar amounts are given over two years.)
This product was created by the Center for American Progress Action Fund’s Wonk Room.
Source: CAP data analysis from Moody’s Economy, BLS, U.S. Census Bureau, and Christina Romer & Jared Bernestein (2009)
Read what the Center for American Progress has to say about the stimulus:
Infographic: Four Reasons We Can’t Afford Not to Have One
Interactive Map: Recovery Beyond the Beltway