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First sign of stimulus? Probably your paycheck.

Tax cuts for workers will show up by May or June – but will total only about $13 a week.

By Staff writer of The Christian Science Monitor / February 17, 2009

Most American workers will see a little more in their paychecks starting this spring because of the federal stimulus.

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For many Americans, the first sign of the Great Stimulus of 2009 will be a few extra dollars in their paychecks this May or June, due to a new tax credit to be doled out throughout the year.

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The weekly bump won’t be much – about $13 on average – but the hope is that millions of people will feel just enough richer to splurge on something they might not otherwise have bought.

When the US might first see the effect of the stimulus on the overall economy is a more complicated question. Some items in the bill – such as the personal tax credit, a tax break for first-time home buyers, and expanded unemployment benefits – may provide a quick monetary boost. Others, notably the billions in infrastructure spending, won’t peak until 2010.

In fact, it might be years before economists get a handle on how, or if, the stimulus boosted the nation’s gross domestic product (GDP) in its hour of need. That’s because success in this case might be measured not by a sudden spike in business, but by things that don’t happen: layoffs not made, bankruptcies averted, and foreclosures forborne.

“One thing is certain: There is no ‘silver bullet.’ The recession will take time to play out, and the economic stimulus package and financial-sector reform efforts will take time to produce results,” concludes a new Wachovia Economics Group analysis.

A 3.8 percent boost?

In signing the stimulus legislation Tuesday in Denver, President Obama struck a more hopeful note, perhaps, but also indicated that it would not be a cure-all.

“I don’t want to pretend that today marks the end of our economic problems. Nor does it constitute all of what we have to do to turn our economy around,” the president said. “But today does mark the beginning of the end, the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs.”

The stimulus bill could by the fourth quarter of 2009 provide an increase of anywhere from 1.4 percent to 3.8 percent in what the GDP would otherwise have been, reports the Congressional Budget Office (CBO).

This increase might fade a bit, to between 1.1 percent and 3.3 percent of GDP, by 2010 and then fall off year by year, according to the CBO. The legislation’s stimulative effect would end by 2014.

But the macroeconomic effects of any economic stimulus program are uncertain, wrote CBO director Douglas Elmendorf in a letter to Sen. Judd Gregg (R) of New Hampshire, the ranking Republican on the Senate Budget Committee.

Big stimulus is rare

One reason is because federal pump-priming on this scale has rarely been attempted. “Some economists remain skeptical there would be any significant effects, while others expect very large ones,” wrote Mr. Elmendorf.

The $787 billion stimulus bill, if nothing else, is a landmark achievement for a new chief executive. It took President Ronald Reagan until August 1981 – or seven months in office – to get his tax-cut-based economic plan through Congress. Mr. Obama has pushed through a larger piece of legislation in just over a month.

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