A. Introduction

While there has been much discussion in the media about the potential long-term negative impact of some healthcare reform proposals pending in Congress on the U.S. fiscal deficit, there has been scant attention paid to the potential impact of the recently enacted stimulus bill on the long-term deficit. This article identifies and discusses the policies contained within the American Recovery and reinvestment Act of 2009 (ARRA, P.L. 111-5) that are likely to become permanent and attempts to quantify their cost. I identify more than $130 billion in annual increased spending or tax reductions likely to materialize an annual deficit increase of more than $130 billion from the extension of policies initiated in ARRA.

B. Overview of the Stimulus Bill

ARRA was signed into law on February 17, 2009. The final conference report to the agreement passed the House 246 to 183 and passed the Senate 60 to 38. The bill, intended to provide a fast-acting and temporary economic stimulus to the economy, contains a mix of tax cuts and spending increases. The major categories within the bill include $288 billion in tax cuts, $144 billion in transfers to the states, and $357 billion in federal spending. The three-year cumulative deficit impact of the bill is $719 billion, the seven-year impact is $809 billion, and after that the bill actually reduces the deficit by about $7 billion a year. The bill is widely cited as costing $787 billion, the 10-year cumulative deficit impact. I estimate that the average annual impact of the bill through fiscal 2011 (excluding the one-time $70 billion alternative minimum tax patch) to be $250 billion per year.1 Table 1 on the following page (reproduced from the Congressional Budget Office report) summarizes the budget impact of the bill.

C. Estimating the Long-Run Impact of ARRA

The intent of this article is not to devise a precise estimate of the cost of future policy but rather to demonstrate that the long-run budgetary impact of the stimulus bill will be larger than generally reported--in fact, it will be larger than that of current healthcare reform proposals. To estimate the impact of the stimulus bill as a result of the likely permanent extension of some policies, I undertook a simple two-step process. I first determine whether the policy is likely to be extended and, if so, then estimate an approximate annual budget impact of the extended policy.

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Alex Brill is a research fellow at AEI.