CBO: Majority of Stimulus Money Would Enter Economy by End of 2010

Tax cuts might give more immediate boost, but spending could yield biggest return, a new report says

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One day after the Congressional Budget Office released its first analysis of the entire $816 billion stimulus package, CBO director Douglas Elmendorf underlined that the majority of the money would make its way into the economy by the end of 2010—mainly through its tax cuts provisions.

"Appropriations pay out more slowly," he said at a hearing before the House Budget Committee this morning. "That doesn't mean that they're less useful."

While tax cuts have a more immediate payoff, he said, when compared dollar to dollar with spending, they also have less of a return on their investment.

The new report issued by the CBO examines the potential effect of the total stimulus package, which it estimates at $816 billion. The report says that 64 percent of the money would make its way into the economy within 19 months.

That's much higher than the estimate in a preliminary report the CBO released last week, which said that the first 19 months would see less than 40 percent of the stimulus package make its way into the economy. Republicans touted that report as proof of their contention that the bill's spending wouldn't stimulate the economy quickly.

But Democrats criticized the report for examining only the appropriations section of the bill, such as spending on infrastructure, which generally takes longer to pay into the economy. The CBO agreed that the report was only partial.

Still, using two-thirds of the money by the end of 2010 falls short of the Obama administration's goals. Peter Orszag, President Obama's budget director, has said to Congress that the bill should pump 75 percent of the money into the economy by September 30, 2010.

In today's hearing, Elmendorf wouldn't outline what percentage of the package should be tax cuts versus spending. Currently, about one-third of the bill is devoted to tax cuts and two-thirds to spending.

He pointed out, however, that a package should not be focused only on either immediate or long-term effects.

"You don't really want to have a policy that provides a stimulus in 2010 and then goes away overnight, leaving the economy in a pothole," he said. Instead, he said, "a combination" of shorter- and longer-term measures, like tax cuts and spending, "makes sense."

The House is expected to vote on the bill tomorrow. Meanwhile, the Senate Committees on Finance and on Appropriations have taken up their own version of the stimulus package today.