Obama stimulus plan: Will it work?

@CNNMoney September 7, 2011: 2:39 PM ET
Obama stimulus plan: Too little, too late

President Obama will propose a new stimulus package Thursday night.

NEW YORK (CNNMoney) -- The economy is in the dumps. Growth is slowing. The housing market remains depressed. Job creation has stopped.

Can a stimulus package of roughly $300 billion in spending and tax cuts get things back on track?

President Obama believes it can and is expected to make that case Thursday night in a high-profile address to Congress and the American public.

But economists say the package won't be enough to change the struggling economy's trajectory.

"The kick to growth is going to be pretty small. It will add substantially less than 1% to GDP growth in 2012," said Nigel Gault, the chief U.S. economist at IHS Global Insight.

In the second quarter, the economy grew a measly 1% and economists spent the summer revising their forecasts lower and lower.

Obama's proposal is expected to include new infrastructure spending, targeted tax cuts and payments to local and state governments. While details are still murky, sources confirmed the package's overall size was around $300 billion.

"If we're talking about whether the package is big enough to ... start making a dent, it's probably going to fall short of that goal," said Gary Burtless, a labor economist at the Brookings Institution.

Obama battles job crisis

The simulative potential of the plan is hindered by another factor: A majority of the plan's spending is needed just to continue current law -- something that will provide no boost.

According to a draft proposal of the plan, $120 billion would be spent to extend the payroll tax cut that has boosted the size of workers' paychecks this year. And $50 billion would be spent on unemployment insurance.

The expiration of those programs could slow the economy. But at the same time, their extension will not provide any additional stimulus.

"You don't get any extra kick from those things. It just means you avoid the drag of their expiration," Gault said. "That's not going to jumpstart anything."

That leaves only $130 billion in new spending left on the table for roads, infrastructure and aid to states.

Why so little? Politics.

"My suspicion is that economists within the administration are saying the same things about the size of the package. The president's judgment is probably guided by political factors," said Burtless.

The plan's prospects in a sharply polarized Congress -- particularly with the 2012 presidential primary season looming -- appear dim at best.

Some Republicans have already dismissed it, saying any proposal from the president will amount to little more than a second round of Obama's 2009 stimulus plan.

In a bid to attract Republican votes, the White House plans to offer ways to raise revenue or cut spending to pay for the new spending.

While some proposals, such as payroll tax cuts, are intended to appeal to Republicans, things like spending on infrastructure projects are political longshots.

On Labor Day, Obama offered a preview of his argument for their extension.

"You say you're the party of tax cuts?," he said. "Well then, prove you'll fight just as hard for tax cuts for middle-class families as you do for oil companies and the most affluent Americans. Show us what you got."

--CNN's Jessica Yellin contributed to this report. To top of page

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