The House Considers Food Stamps and Taxes

April 18, 2012 at 4:54 pm

We released two pieces today on House action this week to cut funding for the Supplemental Nutrition Assistance Program (SNAP).  The second of our pieces juxtaposes the SNAP cuts against a pending tax cut for small businesses.

  • House Agriculture Committee Proposal Would Cut 2 Million Off Food Stamps, Reduce Benefits for More Than 44 Million Others

    The House Agriculture Committee, which the House-approved budget requires to quickly produce $33 billion in savings over the next decade, approved a proposal today that would obtain the entire amount from cuts to the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps.   The cuts — which would come on top of another proposal in the House budget to cut SNAP by $133 billion over the next decade and convert it to a block grant — would reduce or eliminate benefits for all SNAP households, including the poorest.

    No other program under the Committee’s jurisdiction would face any cut under the proposal, despite frequent calls for reform of the nation’s farm subsidies — 74 percent of which go to the largest, most profitable farms, according to the Agriculture Department based on 2009 data. . . .

  • Statement by Chad Stone, Chief Economist, on Pending House Tax Cut and House Committee SNAP Benefit Cuts

    The House majority is pursuing legislation this week that makes no economic sense.

    The full House will pass a $46 billion tax cut that’s advertised as a “job-creating” measure, while the House Agriculture Committee approved a plan today to save $36 billion by cutting the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps).  Virtually the entire tax cut as well as about $8 billion of the SNAP cuts would take place in 2012-2013.

    That’s simply wrong-headed.

    The $8 billion in SNAP cuts over the next year would do more damage to economic growth and job creation than any stimulus that the $46 billion in tax cuts could generate, according to standard “multiplier” or “bang-for-the-buck” estimates like those from the Congressional Budget Office (CBO) and Moody’s Analytics. . . .

Greenstein on the Safety Net, Part 2

April 18, 2012 at 3:20 pm

Our first set of excerpts from Robert Greenstein’s House Budget Committee testimony of this week looked at the safety net as a whole.  Today’s excerpts concern the Supplemental Nutrition Assistance Program (SNAP), formerly food stamps:

[T]he proposal in the House budget to convert SNAP to a block grant and cut it at least $133.5 billion over ten years . . . is a source of great concern.

SNAP funds go overwhelmingly for food purchases — nearly 95 percent of federal SNAP expenditures go directly for benefits to recipients.  Most of the remainder goes to determine eligibility, administer the work requirements and work programs, and approve and monitor compliance by retail food stores — costs that would largely remain under a block-grant.  The math here is inexorable — the only way to secure savings of this magnitude would be to cut eligibility, benefit levels, or both.

If the savings were to come entirely from eliminating eligibility for currently eligible households, more than 8 million people would need to be cut adrift from the program if the cuts began taking effect in 2013. . . .

If the savings were secured by cutting benefit levels instead, increased hunger and food insecurity would likely result.  Considerable research suggests that the SNAP benefit level may already be too low to enable many families to secure an adequate diet throughout the month.  (Many run out of adequate food toward month’s end.)  The Institute of Medicine is currently reviewing this matter and examining whether the current SNAP benefit level is adequate.  It would be dangerous to shrink benefit levels for needy children, seniors, and others.

Converting SNAP to a block grant at substantially reduced funding levels also would have other deleterious effects.

  • SNAP would no longer be able to respond to increased need during economic downturns, resulting in increased hardship and hunger in recessions.
  • Nor would SNAP be able to bolster the economy during recessions as it does today. . . .  Preventing SNAP from expanding automatically as the economy weakens by converting it to a block grant would remove what economists call an “automatic stabilizer” and hence likely make recessions somewhat deeper and longer.
  • Finally, a proposal like that reflected in the House budget would make deep poverty more widespread and severe, especially among children, who make up about half of all SNAP beneficiaries. . . . 

Above all else, there is the issue of children’s health.  I am old enough to remember the mid and late 1960s, when each state sets its own food stamp rules, some states cut off families at income levels as low as 50 percent of the poverty line, and some states adopted barriers that impeded participation (in some cases, with disproportionate effects on members of some minority groups).  Two teams of medical researchers conducted nutrition surveys in the late 1960s and found rates of childhood malnutrition and related diseases in some poor areas of our country that were akin to those in some third-world countries.  This led to a national bipartisan consensus — led by President Richard M. Nixon — to establish national eligibility and benefit standards for food stamps.  In the late 1970s, after the national standards had taken effect, the medical teams returned to many of the same poor areas they had studied in the late 1960s and found dramatic improvement among poor families and especially among poor children.  Child malnutrition and related conditions had become rare.  In a famous report on their findings, the medical researchers wrote.  

In the Mississippi delta, in the coal fields of Appalachia and in coastal South Carolina — where visitors ten years ago could quickly see large numbers of stunted, apathetic children with swollen stomachs and the dull eyes and poorly healing wounds characteristic of malnutrition — such children are not to be seen in such numbers.  Even in areas which did not command national attention ten years ago, many poor people now have food. …

The researchers credited food stamps as the single largest factor for this striking progress, concluding that “no program does more to lengthen and strengthen the lives of our people than the Food Stamp program.”  I believe this is a lesson we shouldn’t forget.

Click here for the full testimony.

Protecting Medicare’s Future

April 18, 2012 at 11:15 am

Sixteen Republican members of Congress who are doctors, dentists, or nurses have asked a range of health policy experts how to improve the “strength and solvency of Medicare.”  Brookings Senior Fellow Henry Aaron, my colleague Judy Solomon, and I have prepared a joint response.  Here’s a summary.

Health reform has substantially improved Medicare’s long-term financial outlook.  The Affordable Care Act (ACA) has reduced the 75-year shortfall in the Hospital Insurance (HI) trust fund by four-fifths — to 0.79 percent of total earnings subject to the Medicare payroll tax.  Congress could close the remaining gap by raising payroll tax rates by 0.4 percentage points apiece on employers and employees.

Even the Medicare actuary’s alternative scenario, which assumes that not all of health reform’s Medicare savings will materialize, finds that the ACA reduces the HI trust fund’s long-run shortfall by nearly half.  These projections underscore the importance of resolutely implementing the ACA.

In the near term, a major slowdown in Medicare spending beyond what health reform will achieve will be hard to come by.  But we can generate some additional savings over the next ten years while preserving Medicare’s guarantee of health coverage and without raising the eligibility age or otherwise shifting costs to vulnerable beneficiaries.

Possibilities include ending Medicare’s overpayments to pharmaceutical companies for drugs prescribed to “dual eligible” beneficiaries (people enrolled in both Medicare and Medicaid), improving the coordination of care for dual eligibles, increasing Medicare’s administrative budget to prevent and detect fraudulent and wasteful spending, raising cost-sharing charges for certain services (while protecting low- and moderate-income beneficiaries), and raising premiums for better-off beneficiaries.  The Medicare Payment Advisory Commission (MedPAC) has also sent Congress a long list of savings options that could help offset the cost of repealing Medicare’s flawed sustainable growth rate (SGR) formula for setting doctor payments.

Policymakers’ key fiscal policy goal should be to stabilize the federal debt relative to the size of the economy.  But it’s neither necessary nor desirable to accomplish this by fundamentally restructuring Medicare — such as through “premium support” proposals that would convert it to vouchers — or  by severely cutting Medicare and other programs that protect low- and middle-income Americans.  Instead, we should pursue a balanced deficit-reduction approach that includes revenue increases.

Top Ten Federal Tax Charts

April 17, 2012 at 2:24 pm

In recognition of Tax Day, we’ve collected our top ten charts related to federal taxes.  Together, they provide useful context for the coming debates about how to reduce soaring budget deficits and reform the tax code.

Our first chart, below, reminds us what taxes pay for:  three-fifths of federal spending goes for national defense, Social Security, and major health programs like Medicare and Medicaid; the rest goes for safety net programs, interest on the debt, and a wide variety of other areas.

Our second chart, below, shows that the United States (including both the federal government and the states) collects less in taxes as a share of the economy than nearly any other developed country.

The next three charts show some of the factors that have made the United States a low-tax country.  They include the downward trend in taxes on middle-income families, the steep drop in federal taxes at the top of the income scale, and the decline in corporate income tax revenue as a share of the economy.

As our third chart, below, shows, federal taxes on middle-income Americans are near historic lows, according to data from the Urban-Brookings Tax Policy Center (TPC):

  • A family of four in the exact middle of the income spectrum will pay only 5.6 percent of its 2011 income in federal income taxes; and
  • Average federal income tax rates for this middle-income family have been lower during the Bush and Obama Administrations than at any time since the 1950s.

Overall federal taxes — which include income as well as payroll and excise taxes — are also near their lowest level in decades.

As our fourth chart, below, shows, the share of their income that the country’s highest-income 400 taxpayers pay in federal income taxes has also fallen considerably since 1992, according to IRS data.  Over that same time, the incomes of those taxpayers has skyrocketed.  While the Great Recession (like the 2001 recession) caused a sharp drop in incomes at the top, the most recent data show that incomes at the top have since begun to rebound.

As our fifth chart, below, shows, corporate tax revenues are at historic lows as a share of the economy.

Although the top U.S. statutory corporate tax rate is high by international standards, the average tax rate — that is, the share of profits that companies actually pay in U.S. taxes — is substantially lower because of the many deductions, credits, and other write-offs that corporations can take.  U.S. corporate tax revenues are low compared to other developed countries as a share of the economy.

The next two charts highlight critical facts to keep in mind when evaluating tax proposals.

As our sixth chart, below, shows, the nation is on an unsustainable fiscal track if we continue current policies.  Higher tax revenues are an essential part of a balanced deficit-reduction package.    

As our seventh chart, below, shows, the top 1 percent of taxpayers have enjoyed enormous gains in after-tax incomes in recent decades, dwarfing the gains among other income groups.  (For more on the growth in income inequality, see our slideshow series.)

The sharp growth in income inequality suggests that higher-income taxpayers can and should contribute more in taxes to help reduce deficits.

As our eighth chart, below, shows, the 2001 and 2003 tax cuts benefit millionaires much more than middle-income households — a sign of how heavily they are weighted toward the top of the income scale.  A good start to raising revenues for deficit reduction would be to allow the tax cuts aimed exclusively at people earning over $250,000 to expire on schedule at the end of 2012.

As our ninth chart, below, shows, policymakers can also can reduce deficits — and make the tax code more equitable and economically efficient at the same time — by reforming tax expenditures (tax credits, deductions, and other preferences).   Tax expenditures are expensive, costing $1.1 trillion in 2011 (more than Medicare or Medicaid), and in many cases they provide the biggest benefits to the people who least need them.

As our tenth and final chart, below, shows, one of the most top-heavy tax expenditures is the preferential tax rates for investment income, which are much lower than the rates for wage income.  Since the large bulk of investment income goes to upper-income households, these preferential rates are the major reason why the tax code violates the “Buffett Rule” — in other words, why many middle-income Americans pay more of their income in taxes than some millionaires.

Middle-income people who receive most of their income from their paychecks (as middle-class people generally do) pay 14.9 percent of their income in federal income and payroll taxes, according to TPC.  This is higher than the rate for people with incomes over $1 million who receive more than a third of their income from investments (that is, capital gains and qualified dividends).

Greenstein on the Safety Net, Part 1

April 17, 2012 at 12:08 pm

Testifying today before a House Budget Committee hearing, “Strengthening the Safety Net,” Robert Greenstein urged policymakers to “step back from the usual type of Washington debates and political battles and consider what policies would be best for ‘the least among us.’  I urge you to follow the Hippocratic oath and ‘do no harm.’  I also implore you to adopt the Bowles-Simpson principle of protecting the disadvantaged and avoiding measures that would increase poverty and hardship in a nation as abundant as ours.”

The following excerpts are from the first section of his testimony, which looks at the safety net as a whole:

The safety net is far from perfect and contains areas that merit strengthening.  Yet as a result of a series of mostly bipartisan decisions over several decades, it is functioning far better than is often understood.

Let’s start with its effect on poverty.  Analysts across the political spectrum agree that to measure the safety net’s impact on poverty, one cannot use the “official” measure of poverty — which completely ignores SNAP (formerly known as the food stamp program), the Earned Income Tax Credit, rental subsidies, and the like and also fails to adjust for taxes that are withheld from paychecks and that families thus can’t spend. . . .

In the mid-1990s, a National Academy of Sciences’ expert panel recommended use of such a broader measure of poverty, and the Census Bureau issues several alternative, broad poverty measures.  Under the measure most closely resembling the NAS recommendation, the poverty rate stood at 15.5 percent in 2010.  Yet under the same measure, the poverty rate without the safety net — that is, the poverty rate based on household incomes before government assistance is counted — was 29 percent.  In other words, the safety net cut poverty nearly in half compared to what it otherwise would be. . . .

One also can look at the Census data on how many people individual programs lift out of poverty.  In 2010, for example, the Earned Income Tax Credit and the Child Tax Credit lifted about 9 million people in low-income working families above the poverty line, including 5 million children.  SNAP lifted about 4 million out of poverty.

Among the most striking figures are those that track poverty rates over the last few years.  Given the depth and severity of the economic downturn (sometimes called the Great Recession), one would have expected poverty to have soared.  It didn’t. . . .  The “automatic stabilizer” response of programs like SNAP and unemployment insurance, supplemented by the temporary increases in assistance in various safety net programs that were provided under the Recovery Act, counteracted most of the increase in poverty that would otherwise have occurred.  This is a substantial accomplishment, and one that speaks well for our nation.

Click here for the full testimony.