Off the Charts Blog | Center on Budget and Policy Priorities

In today’s Senate debate on the farm bill, Senator David Vitter offered — and Senate Democrats accepted — an amendment that would increase hardship and will likely have strongly racially discriminatory effects.

The amendment would bar from SNAP (food stamps), for life, anyone who was ever convicted of one of a specified list of violent crimes at any time — even if they committed the crime decades ago in their youth and have served their sentence, paid their debt to society, and been a good citizen ever since.  In addition, the amendment would mean lower SNAP benefits for their children and other family members.

So, a young man who was convicted of a single crime at age 19 who then reforms and is now elderly, poor, and raising grandchildren would be thrown off SNAP, and his grandchildren’s benefits would be cut.

Given incarceration patterns in the United States, the amendment would have a skewed racial impact.  Poor elderly African Americans convicted of a single crime decades ago by segregated Southern juries would be among those hit.

The amendment essentially says that rehabilitation doesn’t matter and violates basic norms of criminal justice.

It’s also possible that the amendment could contribute to recidivism.  Ex-offenders often have difficulty finding jobs that pay decent wages.  The amendment could pose dilemmas for ex-offenders who are trying to go straight but can neither find jobs nor, as a result of the amendment, obtain enough food to feed their children and families.

Senator Vitter hawked his amendment as one to prevent murderers and rapists from getting food stamps.  Democrats accepted it without trying to modify it to address its most ill-considered aspects.

The farm bill is still on the floor, and the amendment can still be modified.  Senators should gather the courage to step up to the plate and address this matter forthwith.

Some charities and state and local governments have raised concerns about the President’s proposal to cap, at 28 cents on the dollar, the tax subsidy that affluent Americans receive for tax deductions and some other tax expenditures.  Charities worry that charitable donations would drop substantially (although the Tax Policy Center estimates that the decline would be modest); while states and localities worry they would have to pay higher interest rates on their bonds in order to attract investors.  Several important facts are often missing, however, from the discussion of these issues.

• At 28 percent, the top subsidy rate would be the same as during the Reagan years. Some critics of the Obama proposal have noted that under President Reagan, the top marginal tax rate and the top subsidy rate for deductions were both 28 percent, whereas the Obama proposal would create a gap between the top marginal tax rate (39.6 percent) and the top subsidy rate (28 percent).  That’s true but has no bearing on the issue at hand — namely, the effect on charitable giving.  The subsidy rate is what matters here, because it determines filers’ financial incentive to engage in a subsidized activity such as giving to charity or buying municipal bonds.

• The House-passed Ryan budget and House Ways and Means Chairman Dave Camp’s tax-reform process aim to cut the tax subsidy rate below the Obama level. The Ryan budget and Chairman Camp have set a goal of cutting the top marginal rate to 25 percent.  That would put the top subsidy rate for charitable donations and municipal bond interest three percentage points below the Obama cap.

  Most charities and organizations that have criticized the Obama 28 percent limit have been silent about the Ryan and Camp proposals (in many cases, they also were silent during the Reagan and George H.W. Bush years, when the top marginal tax rate was 28 percent).  Some may mistakenly assume that what counts is the difference between the marginal rate and the subsidy rate — when, in fact, it is the subsidy rate that matters.

• The Obama budget would use the resulting savings primarily to replace the sequestration budget cuts, thereby helping both charities and states and localities. Sequestration is scheduled to impose even deeper cuts next year and to remain in effect through 2021.  Its harsh cuts in a range of programs — including those that alleviate poverty or combat disease at home or abroad as well as programs in education, environmental protection, health research, the arts, and many other areas — will place heavy added burdens on both charities and state and local governments.

  Many nonprofits receive grants or contracts to provide services that are funded in part or in whole through federal programs, especially non-defense discretionary programs that operate through state or local governments.  Meanwhile, most federal grants that state and local governments receive to help them perform various functions come through programs subject to sequestration.

  In fact, sequestration will impose a double burden on nonprofits, raising the demand for their services while slicing their revenues.

  Thus, cancelling sequestration is of considerable importance to the charitable sector and to state and local governments.  While charities and state and local governments would lose some revenue from the proposed 28 percent limitation on tax deductions and exclusions, they would receive substantial revenue gains from repealing sequestration.

  By contrast, under the Ryan and Camp proposals, not only would charities and state and local governments suffer bigger losses from those plans’ reductions in tax subsidy rates, but none of the resulting revenue would go to ease sequestration or other budget cuts.

  Moreover, if all of the revenue from scaling back tax subsidies goes to lowering tax rates, as the Ryan budget and Chairman Camp propose, then further deficit reduction will likely come entirely from the spending side of the budget.  (In addition, it’s very unlikely Congress would be able to pass enough tax-expenditure savings to pay for lowering the top rate to 25 percent; if the resulting tax reform lost revenue, the ensuing budget cuts would likely be bigger still.)

  In short, additional cuts — on top of sequestration — in areas such as education, low-income programs, and state and local aid would almost certainly result from the Ryan-Camp approach, making the job of charities and state and local governments even more difficult.

Some critics of the Obama 28 percent limit say there are other ways to raise revenues for the purposes that the President has proposed.  But in most cases, they haven’t offered specific alternatives or they have suggested alternatives that, despite their merits, have little or no political viability in the current political environment.

The task remains of raising revenues to replace sequestration and to serve as part of a balanced long-term deficit reduction package, and the 28 percent limit remains the most promising proposal that is not significantly beyond the bounds of current political reality.

Congressional Republicans reportedly may insist upon revenue-neutral tax reform as part of their price for agreeing to raise the debt limit later this year.  Such a course, however, would effectively block further progress in reducing long-term deficits.  As a result, its negative effects would likely substantially outweigh any positive economic benefits from tax reform.

Here’s why:

After enactment of the fiscal-cliff legislation at the start of this year, further increases in tax rates appear to be off the table.  And the current political environment remains deeply hostile to a new tax such as a carbon or a value-added tax.  The only realistic way to secure significant further revenue to help address long-term deficits is by curbing tax expenditures (deductions, exclusions, credits, preferential rates, and the like), likely through a tax reform process.

Curbing tax expenditures is difficult politically, and tax reform will likely exhaust the achievable savings in that area.  Thus, once tax reform is enacted, opportunities for significant revenue-raising will likely be gone for many years.

This is the danger of revenue-neutral tax reform:  having secured the achievable tax-expenditure savings and used them to fund other tax rate cuts, policymakers will have squandered the opportunity to raise the significant additional revenue needed for deficit reduction.

Thus, if policymakers sought more deficit reduction, virtually all of it would have to come from further spending cuts.

But Congress has already cut funding for discretionary programs by $1.5 trillion over ten years (not counting sequestration), primarily through the 2011 Budget Control Act, which will bring non-defense discretionary spending to its lowest level on record as a share of the economy.  If the sequestration budget cuts remain in effect, they will shrink discretionary funding even further.

As for entitlement programs like Social Security and Medicare, the President and congressional Democrats will strenuously resist — rightly, in our view — substantial cuts in the absence of additional revenue from curbing unproductive or low-priority tax breaks.

If revenue-neutral tax reform takes a further revenue contribution to deficit reduction off the table, it will likely take any prospect for a deficit-reduction agreement off the table as well.

And ironically, Republicans will have held the debt ceiling hostage to produce a result that blocks further progress on long-term deficits and debt.

Proponents of revenue-neutral tax reform sometimes cite the 1986 Tax Reform Act as a model, but the situation is very different today.  Given our long-term deficits, tax reform’s single most important goal should be to raise significant revenue, in a progressive manner, as part of a balanced deficit-reduction policy that also includes savings on the spending side.  Tax reform will consequently be a step backward unless it raises significant revenue.

Many assume that tax reform that lowers rates and broadens the base will yield substantial economic benefits.  But the literature in the field indicates that the economic benefits of revenue-neutral tax reform are likely to be modest.  Economic studies indicate that deficit reduction is considerably more important for long-term economic growth than tax reform.

In short, by squandering the opportunity to reach an agreement to reduce long-term deficits, revenue-neutral tax reform would likely yield adverse economic effects that far outweigh the more modest economic benefits of tax reform.

Tax reform should both clean up the tax code and raise substantial revenue, and policymakers should not undertake tax reform that does the former without the latter.  At this juncture, no tax reform at all would be a sounder and more prudent policy than tax reform that is revenue-neutral and thereby undermines deficit reduction.

In an attempt to reignite efforts to reach a bipartisan budget compromise, President Obama’s new budget will adhere to his final offer to House Speaker John Boehner of December 17 in their budget talks.  As a result, it will contain more savings in both Social Security and Medicare — both in the first ten years and beyond — than the House-passed Ryan budget.

The Obama budget contains major concessions.  It will include $400 billion less in revenue and $200 billion more in discretionary program cuts than Obama’s original offer to Boehner earlier in December.  It will also include the proposal to shift Social Security and various other cost-of-living adjustments to what’s known as the chained CPI, which was not part of Obama’s earlier offers to Boehner in December and which many Democrats strongly oppose.

Yet, while Obama is adhering to his final offer to Boehner, the Speaker has buried his offers to Obama.  His last offer to the President included $400 billion more in revenue than the President and Congress enacted at the start of January.  Now, both Boehner and other congressional Republican leaders say that any more revenues are unacceptable.

And, when the White House released major elements of Obama’s olive-branch budget on Friday, House Major Leader Eric Cantor said he was in a wait-and-see mode “as to whether this White House is really serious.”  That’s a stunning statement, considering that the House-passed Ryan budget includes smaller Medicare savings over ten years than Obama’s new budget will include, and it does not include the chained CPI or any other Social Security savings — and considering that the House budget’s only specific revenue proposals would cost $5.7 trillion over ten years, according to the Tax Policy Center.  Who is being serious here?

As the New York Times’ David Leonhardt recently pointed out, many in Washington tend to describe compromise as halfway between the budget positions of the two parties’ leaders, whatever those positions may be and even if only one party is compromising.  That would be particularly misleading in a situation like this — where the President confronts his political base with proposals like the chained CPI, which appalls many progressives, and takes a big step toward the Republicans in an effort to reach an agreement, but Republicans step farther away from him as they seek to placate their political base.

Last fall, Senate Minority Leader Mitch McConnell and Speaker Boehner described changes like the chained CPI and more means-testing of premiums for affluent Medicare beneficiaries as (in McConnell’s words) “the kinds of things that would get Republicans interested in new revenue.”  The new Obama budget includes both measures.  Yet, the Republican leaders’ response so far has been to insist that revenues are off the table and that the $400 billion in further revenues that Speaker Boehner offered in December is now unacceptable.

Further, the House budget would undo the sequestration budget cuts on defense programs, while more than doubling the sequestration cuts in non-defense discretionary programs — hardly a move toward the middle.

Moreover, if one sets up a playing field where the new Obama budget is one pole and the current Republican no-tax, deep-spending-cut position the other — and presents the halfway point between them as a logical compromise — the result is to ask President Obama and the Democrats to accept an outcome well to the right of Speaker Boehner’s offer in December. That won’t happen, and it shouldn’t happen if policymakers are to produce a fair and balanced package.

So, while Majority Leader Cantor has questioned whether the White House is serious, the real question is whether Republican leaders will be serious and be willing to take on their base, as Obama is doing with his new budget.

Some Congressional critics of Senate Budget Committee Chairwoman Patty Murray’s budget, which her committee approved last week, claim it double-counts spending cuts and boosts spending rather than reducing it.  An examination of these issues suggests, however, these charges are politically driven and don’t stand up well under scrutiny.

The main charge is that Senator Murray cannot legitimately say that spending cuts that help replace sequestration contribute to deficit reduction.  Sequestration is current law, the critics argue, so repealing it represents a spending increase — and replacing it with a combination of spending cuts and revenue increases results in higher, not lower, spending.

This charge may seem plausible at first blush, but it’s a classic example of moving the goalposts to secure political advantage.  For many years, both parties, every bipartisan budget commission, and virtually every budget watchdog group has agreed that deficit-reduction plans should not be measured from a “current-law” baseline — because such a baseline assumes highly unrealistic budget cuts or tax increases that are very unlikely to occur — and should instead be measured from a more realistic “current-policy” baseline.  Indeed, recognizing the shortcomings of its “current-law” baseline, the Congressional Budget Office has routinely provided a number of adjustments for policymakers so they can construct more realistic projections (and it did so again with its most recent budget outlook report in February).

For these reasons, the bipartisan budget negotiations that Vice President Biden headed in early 2011, the Obama-Boehner negotiations of both July 2011 and December 2012, the congressional “supercommittee” deliberations, the Simpson-Bowles and Rivlin-Domenici budget commissions, the Committee for a Responsible Federal Budget, the Concord Coalition, and the Center on Budget and Policy Priorities all have used a current-policy baseline, not a current-law baseline.

Until recently, Republican Congressional leaders themselves insisted on using a current-policy baseline.  They argued that the current-law baseline, under which President Bush’s tax cuts all would have expired on schedule, was unacceptable.

When, just a few weeks ago, Erskine Bowles and Alan Simpson released their new budget plan, they continued to use a current-policy baseline.  Most independent budget analysts, such as the Committee for a Responsible Federal Budget and ourselves, continue to use such a baseline as well.  That’s because the current-law baseline still reflects an unrealistic scenario.  First, it assumes massive cuts in Medicare payments to physicians that no one believes policymakers will allow to occur.  Second, it assumes that the federal government will continue spending at current levels for Iraq, Afghanistan, and Hurricane Sandy in every year for the next ten years, with no drawdowns in operations or reductions in costs; none of that’s going to happen so, in these cases, the current-law baseline overstates likely spending.

The current-law baseline also assumes that sequestration will occur in every year through 2021.  While sequestration may remain in effect for fiscal year 2013, I know of virtually no one in Washington who believes it’s likely to remain in effect for the nine scheduled years.  The history of past sequestrations is that, unless they’re quite modest in size, policymakers either don’t let them take effect or don’t let them remain in effect.  Most observers expect the current sequestration eventually to follow the same course.

From 1992 through 2012, no sequestration occurred, even when Congress violated budget targets and triggered sequestration.  While the current polarized political atmosphere may make it harder than normal for policymakers to reach agreement on turning off the current sequestration, history doesn’t support the notion that sequestration will stand — especially through 2021 — or that a realistic budget baseline should include it.

The Murray budget appropriately uses a current-policy baseline that assumes sequestration will not remain in effect.  Bowles and Simpson received no criticism when they did the same thing for their new budget plan of a few weeks ago.  Nor did the Committee for a Responsible Federal Budget when it published such a baseline earlier this year.  That highlights the political nature of the current attacks on Chairwoman Murray’s baseline.

Finally, House Budget Committee Chairman Paul Ryan’s budget plan does not use a pure current-law baseline, either.  Instead, it removes the unrealistic spending that’s built into the current-law baseline regarding future spending for Iraq, Afghanistan, and Hurricane Sandy.

The Ryan budget is selective in its adjustments.  In fact, Chairman Ryan essentially built a baseline with the smallest possible starting deficits.  For example, it retains the deep sequestration cuts and also assumes that Medicare reimbursements to physicians will be slashed nearly 30 percent on December 31.  That eased his task in producing a budget he describes as reaching balance in ten years.

Some Members of Congress want to use a baseline that builds in the sequestration savings for an obvious reason — it locks in these spending cuts.  In doing so, it also makes it nearly impossible to restore policy balance to the overall deficit-reduction effort.  Policymakers have already achieved about $1.6 trillion in spending cuts and $700 billion in revenue increases since Simpson and Bowles issued their original plan in late 2010 (even without counting any of the resulting interest savings as a spending cut).  When the effects of sequestration are also included, the ratio of spending cuts to revenue increases achieved to date stands at almost 4 to 1 (and almost 5 to 1 if the interest savings are counted as a spending cut, as Simpson and Bowles, among others, do).

These Members not only insist that we use a baseline that starts from the post-sequestration level, but they also argue that no one should view any policy as a budget cut unless it cuts spending below that level.  Such an approach would be virtually certain to produce an overall budget package under which total deficit reduction is highly unbalanced — and highly regressive.

Maybe that’s the point.