Stimulus: How to Know If It's Working

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The packages also would give $7 billion to states that adopt reforms that make it easier for part-time workers, low-wage earners, and women to qualify for benefits. The proposals vary in the amounts by which they would increase food stamp benefits and additional medical assistance for low-income, unemployed workers under Medicaid, but both include spending for these items. An additional $17 billion in the stimulus bills would boost the maximum Pell Grant for higher education by $400 per applicant and provide other financial aid. Along with extended benefits, the unemployed may start to see shorter lines at the unemployment office. Both stimulus bills give states $500 million to help process unemployment applications, which have been overwhelming state systems across the country.

Tax Credits and State Aid

Working and middle-income Americans will benefit from the $82.1 billion in tax credit payments the plans offer. The House plan would give individuals earning up to $75,000 a year a tax credit of $500 and couples earning up to $150,000 a year a tax credit of $1,000. (The Senate bill lowers the income cap to $70,000 for individuals and $140,000 for couples, which critics say would reduce the stimulus effect.) Taxpayers can receive this credit either by claiming a credit on their 2009 and 2010 tax returns or by reducing their withholding from their paychecks. Other tax incentives to encourage auto and home purchases, included in the Senate bill, would be experienced by consumers at the time of purchase.

Later this year, the effects of other spending will become more visible. The bills offer states tens of billions in "state stabilization" money, to fund grants for education and to patch holes that have emerged in many state budgets. (The House bill sets aside $79 billion in state stabilization funds, the Senate bill cuts that to $39 billion.) Another $3 billion is earmarked for state and local law enforcement.

In the meantime, the stimulus plans are expected to create or save jobs in various sectors of the economy. The nonpartisan Congressional Budget Office estimated that the House version of the bill would create between 1.3 million and 3.9 million jobs by the end of 2010. While police officers and teachers might feel the effect immediately, other workers would find jobs later this year on such projects as modernizing electrical grids, building highways, and weatherizing federal buildings.

Metrics May Prove Elusive

Mark Zandi, chief economist at Moodys.com (MCO), says that if the package works according to Washington's plan, unemployment insurance claims should start to drop in the summer and continue through the fall. He warns, however, that the unemployment rate will be slower to fall because layoffs will offset some of the gains. Some economists say that even as the unemployment rate does begin to fall, it will be hard to measure what would have happened without the economic stimulus plan.

The stimulus is likely to provoke heated "Did it work?" debates for years to come among politicians, economists, and the public. "We are throwing a rock into our nation's economic pond, and the ripple effects will spread throughout the economy," says Ellis of the taxpayer group. Still, he says the impact might be more muted than many would hope: the annual U.S. gross domestic product is $13 trillion, while the stimulus package is about $900 billion over several years. Says Ellis: "It's a big rock, but it's a very big pond."

Herbst is a reporter for BusinessWeek in New York.