States, Low-Income Americans to Feel Impact of Stimulus First

Now that Congress has settled on an economic recovery package, the next question is how quickly the government can spend it.

Republicans cried foul over early versions of the bill after budget estimates showed hundreds of billions of dollars would be spent over the next several years.

But while some spending will likely take place well after President Obama's first term, estimates show the bulk of the stimulus will be injected into the economy over the next 18 months.

And economists say cash-strapped states and low-income Americans will feel the benefit almost immediately.

"The stuff that's going to go out real quickly is stuff like unemployment benefits," said James Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities. "It's just a matter of how quickly they can reprogram computers to add that benefit."

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The $787 billion compromise package includes:

  • $40 billion to provide extended unemployment benefits through Dec. 31 and increase them by $25 a week. 
  • $20 billion to increase food stamp benefits by 14 percent. 
  • $14 billion for one-time $250 payments to Social Security recipients and veterans receiving disability and pensions. 

These kinds of cash injections are considered high "bang for the buck" payments, since the recipients are unlikely to put the money in savings.

Click here for our video coverage about the Stimulus Package.

"People who are incredibly cash-strapped are going to be spending what they get right away," said Josh Bivens, an economist at the Economic Policy Institute. "These are people who go paycheck-to-paycheck, so it goes right back into the economy."

Economists say the impact could be felt in a matter of a few months. And the same is true for states that will be receiving billions of dollars in federal aid.

Bivens said that while the states might not be appropriating money immediately, the very fact that local governments know the money is coming means they can forego layoffs that would have been necessary to balance their budgets.

In doing so, the states save jobs and prevent more people from filing for unemployment benefits. They also can prevent other budget cuts from being as deep as they would have been.

The next tier of benefits would likely be the signature income tax reduction. Under the plan individuals would see a $400 tax credit and couples would see an $800 tax credit starting around June. The savings would amount to about $13 a week, so the money is not expected to surge through the economy immediately.

The same holds true for infrastructure spending. Though lawmakers like to tout the impact of so-called "shovel-ready" projects, not all construction sites are prepared to spend the money immediately.

"The infrastructure really is going to be spread more over the next two and a half years," Horney said.

The recovery package contains $46 billion for transportation projects, including $27 billion for highway and bridge construction and repair.

But many of those projects will involve clearing bureaucratic hurdles, as well as opening bids for contractors.

That longer timeline is not necessarily a bad thing, economists say. Even when recessions end, unemployment usually lags behind, so infrastructure spending could help prop up the job market before and during that recovery period.

Jeffrey Kling, a senior fellow and economist at the Brookings Institution, said some construction projects are in fact through the planning stages and just waiting on the money to build. He said the longest-term impact could be seen in certain education and energy spending, where departments will likely be overwhelmed with funding and need time to manage its distribution.

Both stimulus supporters and economists are trying to manage expectations for the economic recovery package.

"It's a plan that will ignite spending by businesses and consumers, make the investments necessary for lasting economic growth and prosperity and save or create more than 3.5 million jobs over the next two years," Obama told The Business Council Friday (though there is some debate over the jobs creation estimate).

But he added: "This work will not be easy. Our recovery will likely be measured in years and not months."

"Nobody should think the economy's going to turn around on a dime as a result of this," Horney said. "They need to be reasonable about their expectations."

Click here to read the latest cost estimates of the stimulus from the Congressional Budget Office. 

The Associated Press contributed to this report.