The Center's work on 'Federal Budget' Issues

The Center informs the debate over federal budget priorities by analyzing the President’s budget and major congressional proposals throughout the annual budget process. We pay particular attention to the adequacy of funding for programs that assist low- and moderate-income families. We also analyze long-term budget challenges and measures to address them. In addition, we promote measures to improve fiscal responsibility.


Social Security’s #1 Priority: Raise Share of Payroll Tax Going to Disability Insurance

July 29, 2014 at 4:49 pm

The Social Security trustees’ new report shows why the program’s immediate priority should be to raise the share of payroll taxes allocated to Disability Insurance (DI) and lower the share allocated to Old-Age and Survivors Insurance to keep the DI trust fund from running out in 2016.  Nine million disabled workers face a 20 percent across-the-board cut in DI benefits if the trust fund is depleted.

Social Security’s disability and retirement programs are closely linked, so ideally Congress would address DI’s finances as part of a long-term solvency package for Social Security as a whole — one that extends the solvency of both trust funds well beyond 2033, when the combined trust funds face exhaustion.  Enacting a balanced solvency package before late 2016, however, is highly unlikely.

Surveys find that Americans are willing to pay higher Social Security taxes to preserve and strengthen Social Security for future generations.  Yet some politicians argue for preserving solvency solely through benefit cuts.  Bridging such sharp divisions will be difficult, and holding DI beneficiaries hostage by refusing to reallocate payroll taxes wouldn’t make the task any easier — or success more likely.

Reallocation is unavoidable.  Even if policymakers miraculously agreed on a balanced solvency package by 2016, any changes in DI benefits or eligibility would phase in gradually and hence do little to replenish the DI trust fund by 2016.

Reallocation is a historically noncontroversial action that policymakers have often taken to shift resources between the two trust funds, in either direction.  Both the Bush and Clinton Administrations endorsed it in the early 1990s, and Congress enacted it in 1994 without a single dissenting voice.

Reallocation isn’t a “patch” or “kicking the can down the road,” as some contend — descriptions appropriate for the recent House-approved bill to extend the Highway Trust Fund by ten months, or Congress’ repeated one-year delays in implementing scheduled cuts in Medicare payments to doctors.  A payroll tax reallocation will keep Social Security’s disability and retirement programs solvent for another 15 to 20 years.

And reallocation doesn’t preclude additional actions to strengthen Disability Insurance.  Reversing the recent decline in Social Security’s administrative funding would allow the Social Security Administration to process claims more quickly and ensure that recipients remain on the rolls only as long as they are eligible.  Changes in the process for approving or denying claims might improve the accuracy and consistency of those disability determinations.  We could also test new strategies to help people with disabilities remain in the workforce, as the President’s 2015 budget proposed.

Ryan’s “Opportunity Grant” Would Likely Force Cuts in Food and Housing Assistance

July 29, 2014 at 11:59 am

House Budget Committee Chairman Paul Ryan maintains that consolidating 11 safety-net and related programs into a single “Opportunity Grant” would give states the flexibility to provide specialized services to low-income people.  But providing these additional services would require cutting assistance funded through the Opportunity Grant to other needy people.  And because SNAP (formerly food stamps) and housing assistance together make up more than 80 percent of the Opportunity Grant, the cuts would almost certainly reduce families’ access to these programs, which are effective at reducing poverty — particularly deep poverty.

SNAP is an entitlement, which means that anyone who qualifies under program rules can receive benefits, and is heavily focused on the poor.  Over 91 percent of SNAP benefits go to households with incomes below the poverty line, and 55 percent goes to households in deep poverty — that is, households with cash incomes below half of the poverty line (about $9,800 for a family of three in 2013).

As a result, SNAP kept 4.9 million people out of poverty in 2012, including 2.2 million children.  It also lifted 1.4 million children out of deep poverty, more than any other benefit program.

Similarly, housing vouchers and other rental assistance lifted 2.8 million people — including 1 million children — out of poverty in 2012.

Chairman Ryan’s proposal to add new work requirements and provide individualized services to recipients of Opportunity Grant-funded assistance would surely require new staff and significantly raise administrative costs.  States would likely turn to SNAP for at least some offsetting savings:  it alone makes up more than half of the resources in the Opportunity Grant, and the Ryan proposal ends SNAP as an entitlement, eliminating eligible families’ guarantee to food assistance.  Rental assistance, which makes up nearly a quarter of the Opportunity Grant, is another likely target of cuts — though even today it serves only one in four eligible low-income families due to limited funding.

Whatever merit Chairman Ryan’s proposal for personalized services has, his Opportunity Grant could not possibly reach as many families as these existing programs serve.

Cutting food and housing assistance that lifts millions of people out of poverty and is effective at reducing hunger and homelessness in order to provide additional services to a smaller number of poor households isn’t a sound way to reduce poverty.

Our Take on Today’s Trustees’ Reports

July 28, 2014 at 4:34 pm

We just issued statements on the trustees’ 2014 reports on Social Security and Medicare.  Here are the openings:

  • CBPP President Robert Greenstein on Social Security:

    “Social Security can pay full benefits for close to two decades, the new trustees’ report shows, but will then face a significant, though manageable, funding shortfall that the President and Congress should address in the near future.

    “Specifically, the trustees estimate that Social Security can pay full benefits until 2033, at which point its combined trust funds will be exhausted.  After 2033, even if policymakers failed to act, Social Security would pay about 75 percent of scheduled benefits, relying on Social Security taxes as they are collected.  The exhaustion date is unchanged from last year’s report and is within the range that the trustees have projected for some time.  In the late 1990s, they projected the exhaustion date as early as 2029; at one point in the last decade, they projected an exhaustion date as late as 2042.

    “The trustees caution that their projections are uncertain.  For example, they estimate an 80 percent probability that trust fund exhaustion would occur between 2029 and 2038 — and a 95 percent chance that it would happen between 2028 and 2041.  The Congressional Budget Office (CBO) recently estimated that exhaustion would occur in 2030, largely because CBO expects somewhat faster improvements in mortality.  Fluctuations of a year or two in either direction are no cause for either alarm or celebration.  The key point is that all reasonable estimates show a manageable long-run challenge that policymakers must address, the sooner the better, but not an immediate crisis. . . .”

  • Senior Fellow Paul Van de Water on Medicare:

    “Medicare has grown somewhat stronger financially in both the short and long term since last year but continues to face long-term financing challenges, today’s report from its trustees shows.  The projected date of insolvency for Medicare’s Hospital Insurance (HI) trust fund is 2030 — four years later than projected last year.

    “Health reform, along with other factors, has significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient.  The HI trust fund’s projected exhaustion date of 2030 is 13 years later than the trustees projected before the Affordable Care Act.  And the HI program’s projected 75-year shortfall of 0.87 percent of taxable payroll is down from last year’s estimate of 1.11 percent and much less than the 3.88 percent that the trustees estimated before health reform. . . .”

History Suggests Ryan Block Grant Would Be Susceptible to Cuts

July 28, 2014 at 2:47 pm

At the heart of House Budget Committee Chairman Paul Ryan’s new poverty plan is a block grant — called the “Opportunity Grant” — that would consolidate 11 disparate low-income programs, the largest being SNAP (formerly food stamps).  Ryan says that the block grant would maintain the same overall funding as the current programs.  But even if one thought that current-law funding levels were adequate, they likely wouldn’t be sustained over time under the Ryan proposal:  history shows that block grants that consolidate a number of programs or may be used for a wide array of purposes typically shrink — often very substantially — over time.

The table below shows 11 major block grant programs created in recent decades.  Eight of them have shrunk since their inception, in some cases sharply.  (Our analysis accounts for the effect of inflation.)

Block grants’ very structure makes them vulnerable to cuts.  Block grants generally give state and local governments more flexibility in how to use funds, leading to varied approaches for achieving program goals.  But this variety makes it hard to see how changes in funding levels affect beneficiaries, or even to be sure how the money is being used.  That, in turn, makes it easier for policymakers looking for savings to target block grants rather than other benefit programs for long-term freezes or cuts.  Block grants in general have fared poorly in the competition for resources.

Chairman Camp’s Troubling Stand on Tax Compliance

July 18, 2014 at 9:00 am

The House voted this week to wipe out one quarter of the Internal Revenue Service’s (IRS) enforcement budget.  This cut, which would dramatically worsen the hit that the IRS budget has taken since 2010, will further undermine the IRS’s ability to collect taxes that are owed. As we’ve described, this helps tax evaders and hurts honest taxpayers, and ultimately increases the deficit.

A less-noticed attack on tax compliance came last week from House Ways and Means Committee Chairman Dave Camp (R-MI), who characterized as tax increases — and therefore unacceptable — provisions in the Senate highway funding bill that are designed to better enable the IRS to enforce tax laws already on the books.

In a press release, Chairman Camp said:

I do not support, and the House will not support, billions of dollars in higher taxes to pay for more spending.  And, I certainly do not support permanent tax increases to pay for just 10 months of highway programs.  Furthermore, it is inconceivable that the House would, as the Senate proposes to do, grant the IRS additional authority to audit and investigate taxpayers simply so Washington can spend more money.

The so-called “permanent tax increases” that Camp condemned include ensuring adequate disclosure of mortgage transactions and clarifying what constitutes a “substantial omission of income” on a tax return.  They are tax compliance provisions, meant to enable the IRS to collect the revenues that taxpayers owe.

As Senate Finance Committee Chairman Ron Wyden (D-OR) told Politico, “these are taxes owed” and “this is enforcing existing law.”  Underscoring the bipartisan nature of this interpretation of the Senate bill, Sen. John Thune (R-SD) added “those are taxes that are owed, and to me, that’s simply a function of making sure that we’re getting paid.”

Camp’s attack was particularly stunning, coming from the chairman of the very committee that writes the nation’s tax laws.  He deemed it “inconceivable” that the House would give the IRS the ability to enforce the tax laws — one of its core functions.  In fact, it should be inconceivable that Congress does not routinely make modest technical adjustments to ensure that people pay taxes as the law intends.  Honest taxpayers deserve no less.

Camp’s position, coupled with the House action to slash the IRS enforcement budget, reflect a fundamental shift in the tax debate, from policymakers supporting appropriate enforcement of the nation’s tax laws to actively seeking to undermine what should be bipartisan compliance efforts.