Off the Charts will be slowing down for the next few weeks, so you might not hear from us every day. But we’ll be back on our regular schedule soon after Labor Day.
This week on Off the Charts, we focused on the safety net, the federal budget and taxes, jobs, health care, and Social Security.
- On the safety net, Richard Kogan reviewed the history of block grants to show that House Budget Committee Chairman Paul Ryan’s “Opportunity Grant” would be susceptible to cuts. LaDonna Pavetti explained why the Opportunity Grant would likely force cuts in food and housing assistance. Douglas Rice noted that Ryan’s anti-poverty plan should worry those who are concerned about affordable housing. Chye-Ching Huang illustrated the impact of Ryan’s proposal to expand the Earned Income Tax Credit (EITC) for childless workers.
- On the federal budget and taxes, Paul Van de Water described why it would be a mistake to require federal agencies to adopt “generational accounting.” Chuck Marr explained how President Reagan’s actions made him a true champion of the EITC. Chye-Ching Huang highlighted reports from the International Monetary Fund and the Organisation for Economic Co-operation and Development supporting a stronger EITC and minimum wage.
- On jobs, we laid out where things stand for the unemployed. Chad Stone illustrated how July’s jobs numbers show that the labor market is moving in the right direction but still has a ways to go.
- On health care, Matt Broaddus pointed to new data showing that adopting a “per capita cap” for federal Medicaid funding would harm states. January Angeles highlighted our new guide on the tax rules that “navigators” and others helping people apply for health coverage need to understand.
- On Social Security, we excerpted statements from Robert Greenstein and Paul Van de Water on the new Social Security and Medicare trustees’ reports. Van de Water explained why Social Security’s immediate priority should be to raise the share of payroll taxes allocated to Disability Insurance.
Chad Stone issued a statement on the July jobs report. We held a media briefing on the Social Security and Medicare trustees’ reports and issued statements by Robert Greenstein and Paul Van de Water. We updated our backgrounder on unemployment insurance, our chart book on the legacy of the Great Recession, and our papers on strengthening the EITC for childless workers and the need to replenish the Disability Insurance trust fund. We also updated our roundup of materials on the Ryan poverty plan.
CBPP’s Chart of the Week:
A variety of news outlets featured CBPP’s work and experts recently. Here are some highlights:
Paul Ryan’s nonprofit pipe dream
July 30, 2014
Just How Much Does Paul Ryan Want The Government To Plan Poor People’s Lives?
July 30, 2014
Paul Ryan’s one crazy trick to hurt all the poor
July 29, 2014
House Republicans Pass Bill to Lower Taxes on the Rich and Raise Taxes on the Poor
July 28, 2014
House Republicans Just Passed Another Tax Cut for the Rich—While Hurting the Poor
The New Republic
July 28, 2014
Social Security – The Train Wreck That Doesn’t Need to Happen
The Fiscal Times
July 28, 2014
“Generational accounting” purports to compare the effects of federal budget policies on people born in different years. But, contrary to economist Lawrence Kotlikoff’s New York Times op-ed promoting a bill requiring federal agencies to adopt the practice, generational accounting is far more likely to obscure than illuminate the budget picture.
Kotlikoff helped develop generational accounting over 20 years ago. It was supposed to provide useful information missing from standard budget presentations. It doesn’t do that, however, and few budget analysts use the approach.
Generational accounting rests on several highly unrealistic assumptions, as our detailed analysis explains. It doesn’t account for the benefits that government spending can have for future generations (for example, education and infrastructure spending that raises living standards). It also ignores the fact that our children and grandchildren will be richer than we are and have more disposable income, even if they pay somewhat higher taxes.
Generational accounting’s most serious flaw may be that it requires projecting such key variables as population growth, labor force participation, earnings, health care costs, and interest rates through infinity. Budget experts recognize that projections grow very iffy beyond a few decades — and spinning them out to infinity makes them much more so. The American Academy of Actuaries describes projections into the infinite future as “of limited value to policymakers.”
The Congressional Budget Office, the Center on Budget and Policy Priorities, and other leading budget analysts focus instead on the next 25 years or so, which amply documents future fiscal pressures and presents a reasonable horizon for policymakers. These organizations produce simple, straightforward long-run projections that show the path of federal revenues, spending, and debt under current budget policies. In that way, they show clearly what’s driving fiscal pressures, and when (see chart).
Policymakers should certainly look beyond the standard ten-year horizon of most budget estimates, but they already have the tools to do that. Generational accounting is hard to interpret and easily misunderstood, and including it in the federal government’s regular budget reports and cost estimates would be a mistake.
We’ve noted that the Earned Income Tax Credit (EITC), which reduces poverty while encouraging and rewarding work, has enjoyed broad support over the years. One of its champions was President Reagan, who proposed and then signed a major expansion of it in the 1986 Tax Reform Act.
While Reagan is often quoted as calling the EITC “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” he was, as Tax Policy Center director Len Burman blogged this week, actually referring to the 1986 tax reform as a whole, not just its EITC component. But that takes nothing away from Reagan’s role in strengthening the EITC.
Burman correctly notes that “Republican icon Ronald Reagan supported the Tax Reform Act of 1986’s expansion of the EITC.” Indeed, Reagan did more than support the EITC increase; he proposed it.
The tax proposals that President Reagan submitted to Congress in 1985 included a proposal to phase in the credit more quickly as a worker’s income rises, expand the maximum EITC, phase the credit out more slowly so that more families would be eligible, and index these parameters for inflation. The final legislation included the Reagan-proposed phase-in (14 percent) and phase-out (10 percent) rates, as well as his proposed indexation. Congress went even further on its increase in the maximum credit.
There’s no question that Ronald Reagan’s actions secured his place as a strong advocate of the EITC.
Today’s solid jobs report shows a labor market that is moving in the right direction but still has a ways to go before everyone who would like to be working has a reasonable chance of finding a suitable job. In particular, Congress dealt the long-term unemployed a harsh blow when it allowed federal emergency jobless benefits to expire prematurely at the end of last year. Seven months later, long-term unemployment remains higher than when any of the previous seven emergency unemployment programs expired after previous recessions. In addition, the share of the population with a job remains well below where it was at the start of the recession.
Click here for my full statement with further analysis.