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.


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.

Why the Ryan Plan Should Worry Those Concerned About the Affordable Housing Crisis, Part 2

August 5, 2014 at 11:52 am

House Budget Committee Chairman Paul Ryan’s proposal to consolidate 11 safety net and related programs, including the four largest federal rental assistance programs, into a single block grant to  states risks significant funding cuts to housing assistance that helps 4.7 million low-income families, as we explained last week.  Today, we’ll describe how the combination of those cuts, and the possible elimination under Ryan’s plan of program rules that ensure housing stability and affordable rents, could undercut rental assistance programs’ effectiveness and put substantial numbers of vulnerable families at risk for homelessness.

Federal rental assistance programs are effective.  They sharply reduce housing instability and homelessness and lift 2.8 million people out of poverty (with the bulk of these impacts coming from the programs included in the Ryan plan).  These effects, in turn, are linked to educational, developmental, and health benefits that can improve children’s long-term life chances.

But Chairman Ryan’s proposal, which would give states broad latitude in spending block grant funds, could enable states to jettison federal rules that are essential to the rental assistance programs’ success, or even to eliminate one or more programs.  The drops in funding that likely would occur over time would increase the risks that states would make damaging changes to housing assistance programs.  The following actions are among those states could take:

  • They could cut the number of families receiving rental assistance.  Such cuts would cause the long waiting lists to grow longer and could occur despite Ryan’s promise that his plan would honor existing rental assistance contracts. Most assistance included in the proposed Opportunity Grant is provided through the Housing Choice Voucher and Public Housing programs, which are typically funded annually (with assistance provided through annual contracts).  Most contracts with private owners under the other two rental assistance programs that Ryan would fold into the block grant also are short term, so this protection would not last long.  Moreover, if states seek to shift some funds from housing programs to other uses and don’t renew a substantial share of these contracts or maintain public housing properties, cities and towns — which may have little say in state decisions on how to use the Opportunity Grant funds — could see housing developments become unaffordable for many low-income households.  And if there is a perception that a state could fail to renew contracts or maintain rental subsidies, that almost certainly would make it more difficult and costly to attract private investment for affordable housing.
  • They could reduce per-unit subsidy levels, since the rules that set those levels in existing rental assistance programs would no longer apply.  In the Housing Choice Voucher program (which allows most participants to rent modest units of their choice in the private market), such cuts could force families to rent lower-priced units in higher-poverty neighborhoods with high crime rates and poor schools.  The other three programs that Ryan would include in the Opportunity Grant (Public Housing, Section 8 Project-Based Rental Assistance, and rural rental assistance, which the U.S. Agriculture Department administers) tie subsidies to particular developments; in those programs, subsidy cuts could make it difficult to pay for adequate building maintenance — already a major problem among Public Housing developments — or for owners to make units available to poor families at an affordable rent.
  • They could shift costs to participating families by raising rents.  Rent rules currently require most assisted families to contribute 30 percent of their income for housing, a share consistent with commonly accepted standards of affordability.  Rental assistance fills the gap between this contribution and actual costs, within reasonable limits that the federal and local agencies set.  Some poor families who may not be able to pay higher rents might find they could no longer afford their apartments if their rents rose substantially.

Programming Note

August 1, 2014 at 4:19 pm

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.

CBPP

“Generational Accounting” Spreads Confusion

August 1, 2014 at 1:05 pm

“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.

Why the Ryan Plan Should Worry Those Who Are Concerned About the Affordable Housing Crisis, Part 1

July 31, 2014 at 12:33 pm

A centerpiece of House Budget Committee Chairman Paul Ryan’s poverty plan is the proposal to consolidate 11 safety net programs — including four housing assistance programs — into a single, flexible block grant to states.  Among its downsides, this proposal threatens to lead to reductions in funding that provides housing assistance to millions of low-income families and individuals.

My colleagues have already set out some of the reasons to be concerned by Chairman Ryan’s proposal:

  • Block grants have proven to be easy targets for funding cuts, in part because their inherent flexibility makes it difficult to demonstrate how cuts would affect needy families and communities.
  • Total funding to assist low-income families — from federal, state, and local sources combined — likely would also decline, because broad block grants afford states opportunities to use block grant funds to replace state and local funds now going for similar services.

Because housing assistance and SNAP make up more than 80 percent of Ryan’s Opportunity Grant, any cuts in block grant funding would very likely reduce families’ access to these programs, as my colleague LaDonna Pavetti has explained.

The history of housing and community development program funding shows the risk of funding cuts that rental assistance programs face under Ryan’s plan.  Funding for flexible block grant programs such as the Community Development Block Grant (CDBG), HOME (which helps states and localities develop and preserve affordable homes for owners and renters), and the Native American Housing Block Grant has fallen sharply over time.  Meanwhile, programs that provide more narrowly prescribed forms of assistance to low-income families and that Congress funds separately each year — a category that includes housing vouchers, rural rental assistance, Section 8 Project-Based Rental Assistance, and Public Housing, the four rental assistance programs that Ryan’s proposal targets — have generally avoided reductions (sequestration in 2013 notwithstanding). (See chart.)

The reasons are easy to understand.  For example, HUD provides Congress every year with precise estimates of the cost of renewing the Housing Choice Vouchers that assist more than 2 million low-income families.  If Congress fails to provide sufficient funding to renew the vouchers, some of those families will lose assistance (and possibly their homes).  In contrast, policymakers can justify cutting a block grant by claiming that local agencies can avoid cutting direct assistance to families by using their flexibility to shift funds from other activities.

Cuts in rental assistance would fall mainly on low-income people who are elderly or have disabilities and working-poor families with children.  More than 80 percent of households with rental assistance in 2010 were elderly, had a disability, worked, or had recently worked.  (2010 is the most recent year for which these data are available to us.)

Rising rents and stagnant incomes have left increasingly more low-income Americans unable to afford decent, stable housing without cutting back on other basic needs.  Already fewer than one in four eligible low-income families receive rental assistance due to funding limitations, and waiting lists are long.  The cuts that would likely result from the Ryan plan would make this shortfall more severe and thus leave more families struggling to pay the rent and keep their homes.