PL 111-5: The American Recovery & Reinvestment Act

Public Law 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), was enacted in response to the Great Recession. Signed into law on February 17, 2009, its purpose was to stimulate the economy, preserve and create jobs, and invest in national priorities. The act’s multifaceted approach combined direct spending with tax relief, with a final estimated cost of $831 billion.

Major Spending and Investment Areas

A portion of the American Recovery and Reinvestment Act was dedicated to direct government spending and investments. A focus was placed on infrastructure, with funds allocated for transportation projects like highway construction, public transit, and airport improvements. The goal was to fund “shovel-ready” projects that could begin quickly to create immediate employment opportunities.

The act also targeted other infrastructure to modernize the nation’s capabilities. Billions were directed toward improving water systems, including projects for clean drinking water and wastewater treatment facilities. Another area was the enhancement of the electrical grid, with investments aimed at developing a more resilient “smart grid” to improve energy transmission and facilitate the integration of renewable energy sources.

The ARRA provided fiscal relief to state and local governments facing severe budget shortfalls. This aid was largely directed toward preventing cuts in public services, particularly in education and healthcare. Funds were distributed to local school districts to prevent teacher layoffs, and a portion of the aid was used to increase the federal share of Medicaid costs, alleviating the financial burden on states.

Another component of the spending was investment in health information technology (HIT). The act established the Health Information Technology for Economic and Clinical Health (HITECH) Act, which provided incentive payments to healthcare providers for the “meaningful use” of certified electronic health records (EHRs). This policy was designed to accelerate the adoption of digital medical records to improve patient care and reduce medical errors.

Finally, the law allocated resources to advance energy efficiency and promote renewable energy. These funds supported programs like weatherization assistance for low-income households and grants for advanced battery manufacturing. The act also funded research and development in renewable technologies like wind and solar power, serving as a strategic investment in U.S. energy independence.

Key Tax Provisions for Individuals

The American Recovery and Reinvestment Act introduced several tax provisions to provide financial relief to individuals. One of the most prominent was the Making Work Pay credit, a refundable tax credit for working individuals. It was calculated as 6.2% of earned income, with a maximum of $400 for single filers and $800 for married couples filing jointly.

To deliver the credit, the IRS adjusted federal income tax withholding tables, so most employees saw a small increase in their regular paychecks during 2009 and 2010. The credit began to phase out for individuals with a modified adjusted gross income (MAGI) over $75,000 and for couples with a MAGI over $150,000.

The ARRA also created the American Opportunity Tax Credit (AOTC), which replaced and expanded the existing Hope Credit. It provided a credit of up to $2,500 per eligible student for the first four years of postsecondary education, covering tuition, fees, and course materials. A feature of the AOTC was its partial refundability, as up to $1,000 of the credit could be received as a payment even if the taxpayer had no tax liability.

Another provision was the enhancement of the First-Time Homebuyer Credit. Originally a type of loan, the ARRA transformed it into a true credit for many buyers. For homes purchased in 2009, the credit was worth up to $8,000 and did not have to be repaid if the buyer remained in the home for at least three years. To qualify, an individual could not have owned a principal residence during the three-year period prior to the purchase, and income limits applied.

Key Tax Provisions for Businesses

The American Recovery and Reinvestment Act included tax relief for businesses to encourage investment. A provision was the enhancement of bonus depreciation, which allowed businesses to immediately deduct 50% of the cost of new, qualifying property in the year it was placed in service. This accelerated depreciation provided a cash-flow advantage by lowering a company’s current-year tax liability, freeing up capital for reinvestment.

Another provision, particularly for small businesses, was the extension of the net operating loss (NOL) carryback period. An NOL occurs when a company’s expenses exceed its revenues. The ARRA temporarily allowed small businesses with gross receipts of $15 million or less to carry back their 2008 NOLs for up to five years, instead of the previous two.

This extension allowed a business to claim refunds for taxes paid in up to five prior profitable years, providing a direct infusion of cash. The measure was later expanded to allow most businesses, regardless of size, to elect a three-, four-, or five-year carryback for an NOL incurred in either 2008 or 2009.

Accountability and Reporting Mandates

To ensure transparency, the American Recovery and Reinvestment Act established an oversight framework. A central element was the Recovery Accountability and Transparency Board (RATB), an independent body of federal inspectors general tasked with preventing fraud, waste, and abuse in ARRA spending.

The act also mandated the development of a public-facing website, Recovery.gov. This portal allowed the public to view data on the distribution and use of ARRA funds, including details on contracts, grants, and loans. The site featured interactive tools that let users track spending in their own communities, setting a new standard for government transparency.

The law imposed quarterly reporting requirements on all entities that received recovery funds. These reports had to include data such as the amount of funds spent, a description of the funded projects, and an estimate of the number of jobs created or retained. This data was provided to both the RATB and the public via Recovery.gov, creating a high level of accountability for the spending program.