Federal Economic Recovery Act is saving jobs, keeping thousands out of poverty

Roughly 66,000 Minnesotans are living above the poverty line this year thanks to a boost from the American Recovery and Reinvestment Act of 2009, according to a recent study by the Center on Budget and Policy Priorities (CBPP). The Recovery Act not only helped struggling individuals and families, but bolstered the state’s overall economy.

It’s a win-win for residents hit hard by the recession and for our state’s economy. The Recovery Act provided Minnesotans extra food stamps, extended jobless benefits and other help. When they spend that money in local stores, that helps those stores stay in business and keeps Minnesotans working.

One of the most important decisions now facing Congress is whether to extend key Recovery Act provisions that are set to expire. With a long, slow recovery ahead, the CBPP research demonstrates why such action is important.

The CBPP’s state-by state analysis looked at the Recovery Act’s impact both lifting people out of poverty and preventing others from falling into poverty. For Minnesota, the analysis finds that the Recovery Act pushed back against the recession by keeping approximately 66,000 residents above the poverty line. That is roughly the size of the city of St. Cloud, or  slightly more than Metrodome capacity for a Vikings game.

Minnesota’s economic benefits likely are much higher than the CBPP analysis predicts. It only considered seven key programs, which combined account for only one quarter of its overall spending. The seven provisions analyzed were: increased food stamp benefits, expansion of the Child Tax Credit and Earned Income Tax Credit, the new Making Work Pay tax credit, two forms of unemployment benefits (an additional $25 per week plus extended weeks of benefits) and a one-time payment to many elderly people, veterans and people with disabilities.

These are difficult times, but the study shows that the Recovery Act has kept things from being much worse. Thousands of Minnesotans are getting help making ends meet despite the worst recession in decades.

Mark Zandi, chief economist for Moody’s Economy.com, says financial assistance to hard-pressed families is one of the best ways to preserve and create jobs. In his 2008 U.S. House testimony, Zandi said a temporary increase in food stamps generates $1.73 in economic activity for every $1 spent. Extended unemployment benefits generate $1.64 for every $1 spent. These were much more effective than cutting corporate tax rates or capital gains taxes.

Congress has agreed to extend the extra unemployment benefits through mid-February. But with high unemployment expected to continue, Congress will need to extend these benefits further early next year. In addition, Congress should extend the Act’s refundable tax credits so they continue to boost the economy and help Minnesota families.

-Steve Francisco and Scott Russell

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About Scott Russell

Scott Russell is a former Minnesota Budget Project policy analyst.
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