The Congressional Budget Office (CBO) has released an analysis of the Senate version of the “stimulus” bill. Here’s a broad summary from the Elmendorf letter:
At your request, the Congressional Budget Office (CBO) has conducted an analysis of the macroeconomic impact of the Inouye-Baucus amendment in the nature of a substitute to H.R. 1. CBO estimates that this Senate legislation would raise output and lower unemployment for several years, with effects broadly similar to those of H.R. 1 as introduced. In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO’s baseline economic forecast.Effects on Output and Employment
The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus. Furthermore, large fiscal stimulus is rarely attempted, so it is difficult to distinguish among alternative estimates of how large the macroeconomic effects would be. For those reasons, some economists remain skeptical that there would be any significant effects, while others expect very large ones. CBO has developed a range of estimates of the effects of the Senate legislation on GDP and employment that encompasses a majority of economists’ views. According to these estimates, implementing the Senate legislation would increase GDP relative to the agency’s baseline forecast by between 1.2 percent and 3.6 percent by the fourth quarter of 2010. It would also increase employment at that point in time by 1.3 million to 3.9 million jobs, as shown in Table 1. In that quarter, the unemployment rate would be 0.7 percentage points to 2.1 percentage points lower than the baseline forecast of 8.7 percent. The effects of the legislation would diminish rapidly after 2010. By the end of 2011, the Senate legislation would increase GDP by 0.4 percent to 1.2 percent, would raise employment by 0.6 million to 1.9 million jobs, and would lower the unemployment rate by 0.3 percentage points to 1.0 percentage point.Those estimated effects differ modestly from CBO’s estimates for H.R. 1 as introduced.1 In particular, the effects on output and employment are slightly higher in 2009 and 2010, but slightly lower in 2011. The differences stem from three main sources. First, the Senate legislation’s provisions regarding the alternative minimum tax (AMT), which do not appear in the House bill, would add stimulus to the economy, especially in 2010. Second, the Senate legislation would allow faster spending from the State Fiscal Stabilization Fund, increasing such spending by about $20 billion over the 2009-2010 period compared with that under the House bill (and decreasing spending correspondingly in the following years). And last, the estimated decrease in withholding (and thus the reduction in revenues) associated with the Making Work Pay Credit would be greater in 2009 under the Senate legislation than under H.R. 1.
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