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Unemployment and the Housing Market: An Economic Stimulus Plan

Unemployment and the Housing Market: An Economic Stimulus Plan

President Obama signed the nearly $800 billion stimulus bill into legislation on February 17, 2009. This plan has had many critics as one may expect, however it is important to note that this plan was designed to go a long way toward addressing the single most significant problem we face: a loss of confidence in the American economic system.

The stimulus package has many different elements; some provisions address the serious unemployment problem, while others have a direct impact on our personal financial health. Still others provide for longer term stabilization and investment in infrastructure. I believe the key elements of the plan can be summarized as follows:

  • Create and save 3.5 million jobs
  • Give 95 percent of American workers an immediate tax cut
  • Provides first time homebuyers with large incentive
  • Restore science and innovation as the keys to new American-made technology

    • The Federal Reserve Board Chairman Bernanke stated on February 18, 2009, that we could see unemployment reach 8.8% of the workforce during this recession; the rate currently stands at 7.6% having lost 3.6 million payroll jobs in 2008. The Bureau of Labor Statistics tracks the employment numbers, and the next report will be released on March 6, 2009. Therefore, the jobs effort is of utmost importance, as unemployment numbers climb toward the records set decades ago. The jobs will be created through new infrastructure projects (repair of roads, highways, bridges), as well as through new initiatives in science and innovation.

    The plan includes a tax credit for most Americans. There are two possibilities to realize tax benefits: the first is through a reduction in tax rates which affects single taxpayers earning less than $75,000 per year and married couples earning less than $150,000 per year. On an annual basis, the benefit will increase take home pay by $400 and $800 respectively for those two filing classes. If you don’t earn enough money to pay taxes, you are still eligible for this credit in the form of a payment from the government, which will put more money into the pockets of the neediest Americans. For those who are currently able to "make ends meet," this is an excellent opportunity to put all of that increase in "take home" pay directly into a savings account.

    The stimulus package adds an additional tax benefit for first time homebuyers. This benefit amounts to an $8,000 credit for first time buyers, which is a direct reduction in taxes owed for the year in which a home is purchased (2008 and 2009). Since this is a tax credit, it actually reduces the amount of tax owed and can result in a cash payment to you if your tax liability is under $8,000 for the year the home is purchased. If you were a first time buyer in 2008, and have already filed your tax return for that year, you may file an amended return and receive the tax credit. This provision could substantially impact home sales and help to bolster that sagging segment of the economy. There are some conditions to this provision regarding home purchase price and income level.

    There are billions of dollars allocated to science and technology in the plan, to include expansion of broadband internet infrastructure, telecommunications infrastructure, expansion of national scientific research facilities, and support for education in the sciences. Further money has been allocated to development of electric car battery technology and the development of more powerful and efficient batteries for the automotive industry. Indirectly, this effort ties back to our energy independence efforts by providing better technology for the electric car. It also is closely linked to the employment picture by facilitating the growth of new jobs in new fields of endeavor. Energy programs to involve further development of solar power, wind power, and revamping and expansion of the national energy grids will contribute both to the jobs picture as well as to our future goals of energy independence. To further advance the efforts under science and technology, there is nearly $19 billion allocated to health care under the stimulus plan. More than half of this allocation will be earmarked for scientific research and implementation of new technologies into health care programs.

    There has been nearly $60 billion allocated to the states under the stimulus plan, with over $50 billion of that focused on education and job retraining in an effort to forestall layoffs and prepare people for new job opportunities. Separately, over $48 billion has been specifically earmarked for education; programs funded directly by the federal government, including over $16 billion in Pell Grants for higher education. These funds may help to supplement the college savings plans which have been devastated by the recent stock market declines.

    There will be many interpretations of this plan as it continues to be studied and implemented. I would expect more information as the funds are actually released and the various state and federal agencies are charged with implementation of the plan. It is important to watch the developments under the stimulus plan, as this is the single most important effort aimed at rebuilding confidence. Just days after this plan was announced, the president released details on his plan to provide relief to the millions laboring under the burden of a huge mortgage payments and possible home foreclosures. The stimulus package coupled with the mortgage foreclosure relief plan may well be the two most important efforts undertaken to address the unprecedented impact of the current recession.

    ©Patrick J. Catania 2009
    The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.

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