What Is the American Recovery And Reinvestment Act?

The American Recovery and Reinvestment Act of 2009 (ARRA) is a law passed by the U.S. Congress in response to the Great Recession of 2008. It is more commonly known as the "stimulus package of 2009" or the "Obama stimulus." The package included a series of federal government expenditures aimed at countering the job losses associated with the 2008 recession.

key takeaways

  • The American Recovery and Reinvestment Act of 2009 (ARRA was a fiscal stimulus bill signed by President Barack Obama on February 17, 2009 to deal with the Great Recession.
  • The Act consisted of $787 billion in spending (later raised to $831 billion) in tax cuts/credits and unemployment benefits for families; it also earmarked expenditures for health care, infrastructure, and education.
  • ARRA was controversial at the time—with supporters and opponents falling mainly into political camps—and its role in ending the Great Recession remains debated to the present day.

Understanding the American Recovery And Reinvestment Act

The American Recovery and Reinvestment Act (ARRA) called for a massive round of federal spending designed to create new jobs and recover jobs lost in the Great Recession of 2008. This government spending was intended to compensate for a slowdown in private investment in that year. Lawmakers began work on the bill months leading up to President Barack Obama's inauguration in January 2009. Aides to the incoming president collaborated with members of the U.S. Congress, and a streamlined amendments process allowed for passage in the House of Representatives on January 28, 2009. The U.S. Senate passed its version on the 10th of February.

Fast-moving conference negotiations followed, and Democratic congressional leaders ultimately agreed to cut back the bill's spending in order to attract a handful of Republican votes. The bill's final price tag of $787 billion represented the largest anti-recession spending package since World War II. President Obama signed the bill into law on February 17, 2009. 

Congress added to ARRA spending in subsequent budgets, eventually raising the total cost to $831 billion by 2011.

Objectives of the American Recovery and Reinvestment Act 

Among the initiatives introduced by the ARRA:

  • Tax relief for families, including withholding reductions up to $800 per family and a $70 billion extension of the alternative minimum tax.
  • Over $80 billion in infrastructure projects.
  • Health care expansion, including $87 in aid to states to help cover additional recession-related Medicare costs.
  • Over $100 billion in education spending, including teacher salary support and Head Start programs. 

The American Recovery and Reinvestment Act Pros and Cons

Contemporary reactions to the ARRA were originally a mix of positive and negative, predictably falling along partisan lines.

Supporters felt that the stimulus spending was not sufficient to draw the national economy out of the recession. Economics professor and columnist Paul Krugman, in a November 2009 New York Times op-ed article, declared the ARRA an early success—"working just about the way textbook macroeconomics said it would"—with its only failure being that it did not go far enough in reviving the U.S. economy. Krugman argued that the stimulus had helped reverse unemployment but was not robust enough to fuel further growth of gross domestic product in the years to come.

Opponents of the ARRA felt that the massive government spending would invariably be inefficient and hampered by bureaucratic obstacles. In a June 2009 Forbes magazine opinion article, "The $787 Billion Mistake," economist Lee Ohanion argued that the economy was showing early but promising signs of recovery without the stimulus having yet taken effect. Asserting "the economic arguments for ARRA were badly dated and erroneous," he insisted that governmental incentives to private spending and hiring would prove more powerful than flooding the economy with unearned dollars.

Even a decade later, the lack of a conclusive counterfactual scenario makes evaluation of the ARRA difficult. It is impossible to say with certainty what direction the economy would have taken without the ARRA. Economic conditions in the U.S. have undoubtedly improved since the 2008 recession, but reasonable arguments can be made both in favor of and against ARRA's role in that recovery—especially given the poliitcally charged atmosphere in which it was developed. This is especially true when the political background for the ARRA is taken into account.