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Where stimulus money will go first

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Steve Chiotakis: The Senate continues debate over a nearly $900 billion stimulus package. Congressional leaders are trying to have a bill ready for the president’s signature before they recess for President’s Day. Once the money starts flowing, who gets stimulated first? Here’s Marketplace’s John Dimsdale.

John Dimsdale: The first Americans to notice the government has come to their rescue will be those on the low end of the income scale.

Lawrence Meyer: I think the first impact would be from spending on food stamps and unemployment compensation.

Lawrence Meyer is a forecaster with MacroEconomic Advisers. He says recipients tend to spend social safety money right away.

Meyer: That spending becomes somebody else’s income. They spend a portion of it and that continues and the total effect on GDP is about one and a half. One and a half dollars for a dollar of spending.

Meyer says the next money to kick in will be federal payments to state and local governments.

Meyer: They’re probably about to lay off workers or raise taxes. They’re not going to have to do that. So a dollar of that aid to state and local governments can also have . . . be relatively quick and have a high multiplier.

Within weeks after the stimulus package becomes law, most American workers will see fatter paychecks as employers withhold less — as much as $70 a month.

Len Burman with the Tax Policy Center says economists think a steady stream of money is better than one big rebate.

Len Burman: There’s evidence from behavioral economics that if people get money in little increments that they treat that more like income to be spent.

Meanwhile, businesses that have recently lost income will be able to count those losses against profits over the last five years. They’ll be able to file for tax rebates right away, without waiting for tax season. But Burman says there’s no guarantee those tax breaks translate into new jobs.

Burman: If you raise companies’ after-tax incomes, they can hire more workers, they can do more investment. Those would both be good things. They could pay executives more money, they could pay out more to shareholders. They could put the money in the bank. Those latter things do nothing to stimulate the economy.

And finally, nearly $300 billion in public works funding should start creating construction jobs. But the Congressional Budget Office says that part of the stimulus package will take the longest– eight years in some cases.

In Washington, I’m John Dimsdale for Marketplace.

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