New Chart Book Paints Picture of Disability Insurance

July 21, 2014 at 1:53 pm

The Senate Finance Committee will hold a hearing this Thursday on Social Security Disability Insurance (DI).  We’ve just released a new chart book about DI.  Its more than 20 figures illustrate the essential facts and dispel some common misperceptions about this vitally important program.

For example, the following graph shows how growth in DI’s benefit rolls has slowed sharply.

The growth in the number of DI beneficiaries in recent decades stems largely from well-known demographic factors.  These include the growth of the population; the aging of the baby boomers into their 50s and 60s, which are years of peak risk for disability; growth in women’s labor force participation, which makes women much more likely to earn insured status for DI; and the rise in Social Security’s full retirement age from 65 to 66.

Both demographic and economic pressures on DI are easing.  In recent months, growth in the number of DI beneficiaries has slowed to its lowest rate in 25 years.  Social Security’s actuaries project that the program’s costs will level off as the economy continues to mend and baby boomers move from the disability rolls to the retirement rolls.

DI costs are projected to exceed revenues, however, and the program’s trust fund needs to be replenished in 2016.  Unless Congress increases the share of the Social Security payroll tax devoted to DI, beneficiaries would then face a 20 percent cut in benefits.

Reallocation between the DI trust fund and Social Security’s much larger Old-Age and Survivors Insurance (OASI) fund is a traditional method of addressing shortfalls in one program, and Congress should do so to avoid a harsh and unacceptable cut in benefits for an extremely vulnerable group.

For the full chart book, click here.

In Case You Missed It…

July 18, 2014 at 4:32 pm

This week on Off the Charts, we focused on the federal budget and taxes, state budgets and taxes, the economy, food assistance, Social Security, housing, and health.

  • On the federal budget and taxes, Chuck Marr noted House Ways and Means Committee Chairman Dave Camp’s (R-MI) troubling stand on tax compliance and pointed out that the House GOP’s IRS budget cuts will stifle enforcement and benefit tax evaders.  He urged policymakers to respond quickly to the current uptick in corporate tax inversions and discredited the idea that permanent “bonus depreciation” is a positive step toward tax reform.  He also showed how a Tax Policy Center analysis confirms our finding that the Child Tax Credit bill before the House would make many relatively affluent people better off while making low-income working families poorer.  Paul Van de Water explained that the Congressional Budget Office’s (CBO) new long-term budget projections are very similar to those that CBO published in September 2013.  Chye-Ching Huang highlighted a segment on HBO’s Last Week Tonight that knocked down estate tax myths.  Richard Kogan discussed the serious economic risks that a constitutional balanced budget amendment would pose.
  • On state budgets and taxes, Michael Leachman explained why states should reject resolutions calling for a constitutional convention.  Michael Mazerov described the risks of permanently banning sales taxes on Internet access charges and refuted three myths about the Internet Tax Freedom Act’s “Grandfather Clause.”
  • On the economy, we excerpted Jared Bernstein’s congressional testimony on the first five years of economic recovery since the Great Recession.
  • On food assistance, Becca Segal listed 10 reasons for schools to adopt community eligibility, an option that enables high-poverty school districts to eliminate applications and serve meals to all students at no charge.  Zoë Neuberger pointed to positive data from the first seven states that have implemented community eligibility.
  • On Social Security, Paul Van de Water explained why Congress should boost the share of the Social Security payroll tax revenue devoted to Disability Insurance.
  • On housing, Will Fischer highlighted the need to rebalance federal housing policy to better support low-income renters.
  • On health, Jesse Cross-Call described the positive benefits that the states that have expanded Medicaid under health reform are experiencing.

Jared Bernstein testified before Congress’ Joint Economic Committee on five years of economic recovery from the Great Recession.  We issued papers on the need to increase the share of the Social Security payroll tax that’s devoted to Disability Insurance, the risks of states calling for a constitutional convention, and the economic risks of a constitutional balanced budget amendment.

CBPP’s Chart of the Week:

A variety of news outlets featured CBPP’s work and experts recently. Here are some highlights:

Finally, Signs of Momentum on Corporate Inversions
Huffington Post
July 17, 2014

New jobs numbers offer no relief for Brownback
Lawrence Journal-World
July 17, 2014

Internet Tax Ban Could Be Big Win For Skype And Snapchat, Major Loss For States
Forbes
July 17, 2014

The misguided, counterproductive campaign against the IRS
MSNBC
July 15, 2014

House GOP’s IRS Budget Cuts:  A Field Day for Tax Cheats
Huffington Post
July 15, 2014

Don’t miss any of our posts, papers, or charts – follow us on Twitter and Instagram.

Busting Three Myths About the Internet Tax Freedom Act’s “Grandfather Clause”

July 18, 2014 at 4:08 pm

The Senate next week will likely consider its version of a bill to renew the Internet Tax Freedom Act (ITFA), a federal law prohibiting state and local governments from taxing the monthly Internet access subscription fee that households and businesses pay.  The House voted earlier this week to make ITFA, which is due to expire on November 1, permanent.

ITFA was enacted in 1998 with strong bipartisan support, and it has always included a “grandfather clause” that allowed states and localities that were taxing Internet access to keep doing so.  Despite its long history, there’s widespread misunderstanding about the grandfather clause in the current debate about renewing ITFA.  Here are the facts behind three widespread myths about that clause:

Myth:  The House and Senate bills that would make ITFA permanent preserve the grandfather clause.

Fact:  The House-approved bill and its Senate analog both effectively eliminate the grandfather clause.  There has been confusion about this because both bills strike ITFA’s November 1, 2014 expiration date with no mention of the grandfather clause.  But the current law terminates the grandfather clause as of November 1, 2014, meaning that it expires as of that date unless policymakers explicitly extend it.  Neither the House nor Senate bill does so.

Myth:  Eliminating the grandfather clause would affect the revenues of only seven states that directly tax Internet access service. 

Fact: Virtually every state, and thousands of local governments, would be at risk of losing revenue if the grandfather clause expires — dollars they use to pay teachers and police, provide financial aid to state university students, repair roads, and provide many other critical services.  That’s because the clause not only preserves the pre-1998 direct taxes on Internet access service of Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin, it also preserves all pre-1998 taxes that could be considered indirect taxes on Internet access.  That would include, for example, state and local taxes that Internet access providers pay on the things they buy in order to provide Internet service, such as computer servers, fiber-optic cable, or even gasoline for their vehicles.  Almost all of these taxes existed before 1998, so the grandfather clause protects them from legal challenge.  But if Congress eliminates the clause, Internet access providers could challenge these taxes in court as indirect taxes on Internet access service and therefore voided by ITFA.  (For more on this issue, see pages 8-10 of my recent analysis.)

Myth:  The grandfather clause was intended to give states time to phase out Internet access taxes, which they’ve had ample time to do.

Fact:  The original 1998 committee reports on ITFA don’t back up this claim.  Such a rationale wouldn’t have made sense anyway, because ITFA itself was supposed to be temporary.  As the 1998 Senate Commerce Committee report said, ITFA was intended to be “a temporary moratorium on Internet-specific taxes [that] is necessary to facilitate the development of a fair and uniform taxing scheme.”  Lawmakers included the grandfather clause to protect the interests of states and localities that had already come to rely on Internet access tax revenues to fund services.  If Congress had wanted to push the states taxing Internet access to phase out those taxes, it could have had the grandfather clause expire sooner than the overall moratorium in the original 1998 legislation or in any of the three subsequent renewals, but it didn’t.

The facts make the case:  if Congress extends ITFA, no matter for how long, the law must continue to include the grandfather clause.

House Should Reject Backwards Child Tax Credit Bill

July 18, 2014 at 2:11 pm

The full House next week will consider the Ways and Means Committee’s recently passed Child Tax Credit (CTC) bill.  A recent Tax Policy Center (TPC) analysis confirms our previous critical assessments of the proposal, finding that it would make many relatively affluent people better off while making low-income working families poorer.

As we explained, the bill makes three main policy decisions that, taken together, constitute poor policy:

  1. It extends the Child Tax Credit higher up the income scale — on a permanent basis — so more families with six-figure incomes will benefit.  The bill raises the income levels at which the CTC begins to phase out.  (It also indexes those thresholds to inflation.)  Couples with two children making between $150,000 and $205,000 would become newly eligible for the credit; a family making $150,000 a year would receive a new tax cut of $2,200 in 2018. 
  2. It fails to make permanent a key CTC provision for working-poor families that will expire in 2017 unless Congress acts.  The provision, which was enacted in 2009, made more working-poor families eligible for the CTC and enlarged it for other working-poor families who had been receiving only a partial credit, by phasing in the credit as a family’s earnings rose above $3,000.  If this low-income provision expires on schedule — as the Ways and Means bill allows — a single mother with two children who works full time throughout the year at the minimum wage and earns $14,500 would lose $1,725 in 2018, as her CTC would be eliminated. 
  3. It indexes the current maximum credit of $1,000 per child to inflation.  This provision benefits only those with incomes high enough to receive the maximum credit.  If the low-income provision is allowed to expire in 2017, millions of working-poor families would either lose their CTC altogether or have their CTC cut and no longer receive the maximum credit, which would make the inflation adjustment meaningless for them.  Under the bill, indexing wouldn’t benefit a family with two children in 2018 until it has earnings of at least $28,050 — nearly double what full-time minimum-wage work pays an individual, as we have explained. 

TPC’s analysis illustrates how the combined effects of these policy decisions harm low-income families while benefiting many with higher incomes.  As the first chart below shows, families with children that have incomes between $100,000 and $200,000 would gain, on average, nearly $550 apiece in 2018, while families with incomes below $40,000 would lose, on average.

The Ways and Means bill’s effects on households’ after-tax incomes are also striking.  As the next chart below shows, households earning less than $20,000 in 2018 would face, on average, a drop in their after-tax income of more than 3 percent while those with incomes between $100,000 and $200,000 would get a boost in their after-tax earnings.

TPC’s analysis underscores the downsides of the Ways and Means bill for low-income working families.  These are parents who work for low or modest wages as cashiers, waitresses, home health aides, and day laborers; they clean office buildings or perform other low-paid work.  Policymakers should reverse course and put these families’ needs first, rather than last, when the full House considers the bill.

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.