Counting Down to August 31 Deadline to Adopt Community Eligibility

August 28, 2014 at 1:20 pm

Schools have a few more days before the August 31 deadline to opt in to the Community Eligibility Provision.  Community eligibility — which allows high-poverty schools to offer breakfast and lunch to all students at no charge without having to process meal applications —is a proven success and an important tool to help children achieve their academic goals.  More than 28,000 schools nationwide are eligible to adopt the provision and become hunger-free.

The U.S. Department of Agriculture (USDA) has encouraged states to continue to accept applications after the deadline and even after the school year begins.  During this transition year, schools can still implement community eligibility even if they have disseminated and collected free and reduced-price meal applications, according to USDA’s July 2014 Guidance.  The sooner they adopt the provision, however, the sooner they will be able to cut back on paperwork, receive reimbursement according to the community eligibility formula — and make meals more readily available to all students.

Community eligibility allows high-poverty schools to ensure that students are ready to learn and receive two nutritious meals every day.  Schools can receive more information on their individual state’s application process by contacting their State Nutrition Director.

Wisconsin and Wyoming Tally Fiscal Cost of Rejecting Health Reform’s Medicaid Expansion

August 28, 2014 at 12:00 pm

Recent budget reports from Wisconsin and Wyoming show that their failure to adopt health reform’s Medicaid expansion is costing them millions of dollars in forgone budget savings.

In Wisconsin, the legislature’s nonpartisan Legislative Fiscal Bureau estimates that the expansion, which covers non-elderly adults with incomes up to 138 percent of the poverty line, would have saved the state $206 million in the 2014 and 2015 fiscal years combined.

Governor Scott Walker chose instead to extend Medicaid coverage to adults only up to 100 percent of the poverty line through a separate waiver.  This means that the federal government is paying for the expanded coverage at the state’s regular Medicaid matching rate of 59 percent, rather than the much higher matching rate for health reform’s Medicaid expansion.  (For states that expand to 138 percent of poverty, the federal government will pick up 100 percent of the cost through 2016 and no less than 90 percent thereafter.)  The difference in matching rates is the main reason for the $206 million in forgone savings.

Wisconsin could still save between $261 million and $315 million over the 2016 and 2017 fiscal years by adopting the expansion during next year’s legislative session, the report estimates.  Gov. Walker has justified his opposition to it by arguing that the federal government would ultimately renege on its financial commitment, but those fears are unfounded.

In Wyoming, the state health department projects that the Medicaid expansion would save the state $50 million a year on other health programs for low-income uninsured residents.  As a result, Governor Matt Mead is moving to advance the Medicaid expansion during the coming legislative session.  More than 17,000 uninsured residents would gain access to coverage under the expansion, the Urban Institute estimates.

The 27 states (including Washington, D.C.) that have adopted the Medicaid expansion are already seeing dramatic gains in health coverage and reductions in the cost of providing uncompensated care to the uninsured.  Wisconsin, Wyoming, and the other 22 states that have not done so could realize similar benefits.

Ryan Backs Reform to Mortgage Interest Deduction — But Bigger Changes Needed

August 27, 2014 at 1:34 pm

Endorsing House Ways and Means Chairman Dave Camp’s proposal to limit the mortgage interest deduction recently, Budget Chairman Paul Ryan explained that it “ought to be a middle class tax break, not something for higher-income earners.”  He’s right to criticize the deduction for favoring those at the top but, while Camp’s proposal moves in the right direction, policymakers should go further.

The deduction, which Camp would limit to mortgages up to $500,000 (cutting the current $1 million limit in half), is ripe for reform (see graph).  Some 42 percent of its benefits go to households with incomes above $200,000, the Joint Tax Committee estimates, while only 8 percent go to households with incomes below $75,000.  Close to half of homeowners with mortgages don’t benefit at all because they either don’t owe federal income taxes (though they typically pay substantial payroll taxes and/or state and local taxes) or don’t itemize deductions.

Federal housing spending as a whole is poorly matched to need, and policymakers could do more to rebalance it if they not only capped the deduction for the largest mortgages but also converted the deduction to a credit worth a fixed percentage of a household’s mortgage interest.

Several bipartisan plans — including those from President George W. Bush’s tax reform panel and the chairs of President Obama’s fiscal commission, Erskine Bowles and Alan Simpson — have backed this approach, which would trim benefits for higher-income households while expanding them for many middle- and lower-income households.

Policymakers should redirect part of the savings from reforming the mortgage interest deduction (after deficit-reduction goals are met) to help low-income renters, for example by creating a renters’ tax credit.  Low-income renters — including elderly people, people with disabilities, and working-poor families with children — are more likely than other groups to struggle to keep a roof over their heads, but federal housing policy provides far more help to homeowners and higher-income households.

More Evidence That State Income Taxes Have Little Impact on Interstate Migration

August 26, 2014 at 1:00 pm

The New York Times’ Upshot blog has published a fascinating set of graphs of Census Bureau data on interstate migration patterns since 1900, bolstering our argument that state income taxes don’t have a significant impact on people’s decisions about where to live.

We plotted the same Census data, which shows which states do the best job of retaining their native-born populations, on the chart below, also noting which states have (or don’t have) a state income tax.  Our chart shows that taxes have little to do with the extent to which native-born people leave their states of origin.

If Heritage Foundation economist Stephen Moore’s claim (which other tax-cut advocates often repeat) that “taxes are indisputably a major factor in determining where . . . families locate” were true, states without income taxes would see below-average shares of their native-born populations leaving at some point in their lifetime, while states with relatively high income taxes would see the opposite.  But the graph shows no such pattern:

  • Three of the nine no-income-tax states perform very poorly in holding on to native-born residents.  Wyoming, Alaska, and South Dakota have three of the nation’s four highest shares of native-born residents who left the state.
  • Four other no-income-tax states are closer to the middle of the pack.  Nevada is almost exactly in the middle of the state rankings, while New Hampshire and Tennessee fall almost equally below and above Nevada; Washington falls within that interval as well.  New Hampshire does no better in retaining its native born than its high-tax neighbor, Vermont.  Tennessee’s neighbor, North Carolina, has had the highest income tax rates among southern states for the past 20 years but outperformed nearly all of them in retaining its native born, tying for second nationally.
  • Only two of the nine no-income-tax states are top performers in retaining their native born.  Threeof the five states that retain the largest shares of their natives — California, Georgia, and North Carolina — have income taxes, and California and North Carolina in particular have had higher income taxes than their neighbors.  Texas and Florida are the only no-income-tax states that rank highly for retention.  

IRS Commissioner Confirms House-Passed Cuts to IRS Budget Could Be “Catastrophic”

August 25, 2014 at 3:48 pm

IRS Commissioner John Koskinen said, according to Tax Notes, that the effects of House-passed IRS budget cuts would be “very serious if not catastrophic” to the agency’s ability to collect revenue and provide taxpayer services, adding: “I no longer want people to think that if we get less money it doesn’t make any difference.  It makes a big difference on taxpayers, on tax preparers, on tax compliance, on tax enforcement.”

As we have written, the House bill would cut IRS funding by $1.5 billion in 2015, including a $1.2 billion reduction in the agency’s enforcement budget, relative to 2014 funding.  The enforcement budget is crucial to the IRS’ ability to collect revenue and pursue tax cheats.  As Commissioner Koskinen affirms, reducing the IRS enforcement budget actually increases the deficit because it prevents the agency from thwarting tax fraud, evasion, and other illegal behavior, thus reducing federal revenue:

Congress is starving our revenue-generating operation. If voluntary compliance with the tax code drops by 1 percent, it costs the U.S. government $30 billion per year.  The IRS annual budget is only $11 billion per year.

And the House cuts would come on top of years of IRS budget cuts that have already weakened enforcement and harmed taxpayer services.  Funding for the IRS fell by 14 percent (after accounting for inflation) between 2010 and 2014 (see chart).  These cuts forced the agency to reduce its workforce by over 10,000 employees and have led directly to a significant decline in the quality of taxpayer services.

For example, millions of taxpayers depend on IRS assistance over the telephone, yet in 2013, a typical caller to the IRS waited on hold for about 18 minutes for an IRS representative, and about 40 percent of calls were never answered.  This is a sharp decline from 2010, when the IRS answered three-quarters of calls and had an average wait time of just under 11 minutes.

Commissioner Koskinen was frank about the impact of continued cuts:

You cannot continue to reduce our resources and ask us to do more things.  The blind belief in Congress that they can continue to cut funding and we will just become more efficient is not the case.  We are becoming more efficient but there is a limit.  Eventually the effects will show up.  We are no longer going to pretend that cutting funding makes no difference.

Policymakers must give the IRS the resources it needs to fulfill its tax-collecting mission and provide the services taxpayers depend on.  The first step is for the Senate and the President to reject the reckless House cuts.