US & World Economies US Economy Obama's Stimulus Package and How Well It Worked Did Obama's Stimulus Plan Work? By Kimberly Amadeo Kimberly Amadeo Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. learn about our editorial policies Updated on December 31, 2021 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article How It Worked How Well It Succeeded The Effectiveness of the Three Components Stimulus for Small Businesses Frequently Asked Questions (FAQs) Photo: The Balance / Bailey Mariner President Barack Obama signed the American Recovery and Reinvestment Act (ARRA) on February 17, 2009. The Congressional Budget Office estimated it would add $787 billion in budget deficits by 2019. The economic stimulus package helped end the Great Recession by spurring consumer spending. Most importantly, it instilled the confidence needed to boost economic growth. It also aimed to restore trust in the financial services industry. It limited bonuses for senior executives in companies that received the Troubled Asset Relief Program (TARP) funds. How It Worked The American Recovery and Reinvestment Act had three spending categories. It cut taxes by $288 billion and earmarked $224 billion in extended unemployment benefits, education, and health care spending. Also, the Act created jobs by allocating $275 billion in federal contracts, grants, and loans. Congress designed the Act to provide nearly $720 billion in benefits, or 91.5%, in its first three fiscal years. It allocated $185 billion in FY 2009, $399 billion in FY 2010, and $134 billion in FY 2011. The Obama administration did better than planned. By the end of FY 2009, the adverse effect on the budget deficit was only $179 billion. Of that, $68 billion went toward tax relief and credits. Another was spent on $34 billion in health services and $21 billion on education. It also spent $28 billion on unemployment compensation and $13 billion on extra Social Security and veterans' checks. The report estimated the total impact on the deficit would be $836 billion by 2019. As of the fiscal year 2014, ARRA had added $827 billion to the deficit. Of that, $303 billion went toward tax relief and credits. Another $141 billion was spent on health services and $97 billion on education. It spent $64 billion on unemployment compensation and $48 billion on the Supplemental Nutrition Assistance Program. How Well It Succeeded In a 2009 report, the CBO projected ARRA would stimulate gross domestic product by 1.4% to 3.8% for the fourth quarter in 2009. The stimulus was successful in 2009 GDP. The economy grew 1.7% in the third quarter and 3.8% in the fourth quarter. That's a big improvement over the first quarter's 6.7% drop and the second quarter's 0.7% decline. In 2009, the CBO predicted that ARRA would increase employment by seven million full-time jobs by the end of 2012. By 2010, the CBO said that ARRA's policies increased the number of full-time-equivalent jobs by two million to 4.8 million. Most of the success was due to the stimulus package. By March 2009, expansive monetary policy had done all it could. It was evident more fiscal policy was needed. Note No doubt, the economic stimulus package inspired the confidence needed to turn the economy around. Obama's biggest challenge was to create enough of a stimulus to soften the recession, but not big enough to raise further doubts about the ballooning U.S. debt. Unfortunately, the plan was blamed for doing both. It failed to reduce unemployment below 9% initially and added to the debt. Even so, the stimulus plan was not condemned as much as health care reform, Medicare, and Medicaid for the debt. The Effectiveness of the Three Components Obama's tax rebates were supposed to encourage consumer spending, but many experts doubted it. Why? The rebates showed up as lower tax withholding. Unlike with the Bush tax cuts, workers did not receive checks. As a result, most people weren't aware they got a tax rebate. The stimulus for small businesses helped create jobs, increased lending from the Small Business Administration and community banks, and reduced capital gains taxes for small business investors. Note The aid helped, but many states were so underwater that their losses outweighed the federal assistance. The public works construction was the most publicized. Signs were posted wherever stimulus money was used to construct roads or public buildings. Economic Stimulus for Small Businesses Although most of the media attention was on the money invested in large banks, the Treasury's TARP program also invested $570 million in 84 institutions to strengthen community banks. Second, the Economic Stimulus Package included tax write-offs for small businesses. Here are a few of them: Deductions for machinery and equipment, such as computer and office equipment, signs, and vehicles, were raised to $250,000. The exceptions were SUVs, which were limited to $25,000. Property that didn't qualify for the tax credit could be depreciated by 50%.Investors in small, publicly-held businesses who held their stock for more than five years received a capital gains tax cut.Small businesses could delay paying the 3% withholding tax on goods and services sold to governments.The Small Business Administration 7(a) loan guarantee was raised from 75% to 90% of the loan value.Fees were eliminated on the SBA's 504 program, which guaranteed $4 million worth of economic development loans to small businesses. The FY 2011 budget also allocated $64 billion, broken down as follows: $33 billion in tax credits for small businesses that add new workers or give raises beyond a cost-of-living increaseRaise the limit on SBA loan guarantees$30 billion from the TARP program for 8,000 community banks; these banks own assets under $10 billion and do half of all small business lending$700,000 to eliminate capital gains taxes for investors in small businesses Frequently Asked Questions (FAQs) Where did the money from President Obama's stimulus go? According to the Government Accountability Office, 36% of funds from 2009's Recovery Act went toward tax benefits, and another 32% went toward entitlement programs like unemployment. The majority of the remaining 32% went toward federal grant programs for purposes like education, transportation, and energy. A small amount of funding also went toward government contracts and loans. Who qualified for President Obama's stimulus checks? To qualify for direct stimulus payments under the Recovery Act of 2009, one needed to be a recipient of Social Security benefits (for either disability or retirement). In total, nearly 55 million Americans received a one-time payment of $250. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Congress. "H.R. 1 - American Recovery and Reinvestment Act of 2009." Congressional Budget Office. "H.R. 1 Conference Agreement." U.S. Department of Treasury. "Executive Compensation." New York City Mayor's Office of Operations. "The Impact of the American Recovery and Reinvestment Act on New York City." U.S. Congress. “H.R.748 - CARES Act.” Congressional Budget Office. "Letter to the Honorable Charles E. Grassley." U.S. Department of the Treasury. "Recent U.S. Economic Growth." The White House of President Barack Obama. "Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009." Congressional Budget Office. "Estimated Impact of the Stimulus Package on Employment and Economic Output." Bureau of Labor Statistics. "Unemployment in November 2009." Internal Revenue Service. "The Making Work Pay Tax Credit." Social Security Administration and IRS. "American Recovery and Reinvestment Act Helps Small Businesses." The White House of President Barack Obama. "Frequently Asked Questions - American Recovery and Reinvestment Act of 2009." U.S. Department of Treasury. "Community Development Capital Initiative." Internal Revenue Service. "Business Provisions of the Economic Stimulus Act of 2008." Pages 1–2. Small Business Administration Office of Advocacy. "Stimulus Package Includes Incentives for Small Business." Small Business Administration. "2009 Recovery Act Q&A for Small Business Owners," Page 2. Government Accountability Office. "The Legacy of the Recovery Act." Social Security Administration. "American Recovery and Reinvestment Act 2009," Select "Implementation."