Tax Credits for Working Families Help Women Now and Later

March 30, 2012 at 10:32 am

March is women’s history month and income taxes are due in April.  So it’s a good time to note the difference that tax credits for working families, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), make for women’s economic security.

Working Family Tax Credits Kept Millions of Women Out of Poverty in 2010 The EITC is enormously successful at encouraging work and boosting earnings among low-income single mothers and is strikingly effective at reducing poverty.  Using data and procedures explained here, I estimate that the EITC kept an estimated 3.4 million women and girls above the poverty line in 2010.  That figure includes the effect of temporary 2009 Recovery Act expansions in the EITC, which alone kept 233,000 women and girls above the poverty line.

The numbers rise when you include a second federal income tax credit — the less well-known CTC, which provides up to $1,000 per child for working families:  together, the CTC and EITC kept 4.9 million women and girls above the poverty line in 2010, including more than 800,000 just by the Recovery Act’s expansions of both credits.  (The Recovery Act expanded other benefits that kept women out of poverty, too.  Counting just a few of them — the Making Work Pay Tax Credit, two expansions of unemployment benefits, and added food stamp benefits, in addition to the EITC and CTC improvements — the Recovery Act and subsequent extensions kept 3.5 million women and girls above the poverty line in 2010.)

Further, research suggests that the EITC may continue to improve these women’s economic security even after they retire.  In a new Congressional Budget Office working paper, researchers project that by raising employment and earnings levels for working-age women, the EITC will boost their Social Security retirement benefits.  That’s because your Social Security eligibility and benefit levels are based on your prior work and earnings history.

The vast majority of seniors rely heavily on Social Security benefits in retirement, but these benefits are especially critical for women and low-wage workers. That the EITC is expected to boost Social Security receipts and benefits among low-wage women is just one more way that it provides economic security by promoting and supporting work.

Putting a Price on Carbon Can Be a Budget Policy/Energy Policy “Two-Fer”

March 29, 2012 at 3:02 pm

As my CBPP colleagues have been busy documenting, House Budget Committee Chairman Paul Ryan’s budget does more to sharpen partisan differences than to move us toward a credible, sustainable, and bipartisan deficit-reduction plan.   My latest post for US News & World Report discusses something that would be a step in the right direction:

Policymakers who are serious about addressing the nation’s long-term fiscal problems should look closely at the merits of “putting a price on carbon.” A carbon tax or similar policy is a “two-fer” that would give businesses and households a better price signal to guide their decisions about energy use, and that would raise revenue to reduce the budget deficit.

As our backgrounder on policies to reduce greenhouse gas emissions points out, market-based approaches to controlling pollution from fossil-based energy create incentives for businesses and households to conserve energy, improve energy efficiency, and adopt clean-energy technologies — without prescribing the precise actions they should take. It’s the solution that most economists prefer, including advisers to prominent members of both parties.

A carbon tax or other market-based approach to putting a price on carbon can generate revenue to reduce long-term budget deficits.  By itself, however, it is a regressive policy, since low-income households spend a larger share of their income on energy and energy-related products than better-off households.  To protect the truly disadvantaged — a key principle that the Bowles-Simpson deficit commission set forth — any comprehensive deficit-reduction package that puts a price on carbon should include appropriate protections for low-income consumers.

Cooper-LaTourette Plan Not as Balanced as Bowles-Simpson: Take Two

March 29, 2012 at 12:58 pm

I blogged yesterday about the Cooper-LaTourette budget plan and its proponents’ claim that it reduces deficits through a mixture of two-thirds spending cuts and one-third tax reform — the same ratio as the Bowles-Simpson plan. I offered one explanation of why that’s not true.  Here, let me offer another.

As I wrote yesterday, Bowles-Simpson does indeed have roughly two dollars in spending cuts for every dollar in tax increases — if you use a baseline that assumes that President Bush’s tax cuts for upper-income taxpayers expire (and if you count the savings from lower interest payments as a spending cut).

The Cooper-LaTourette budget purports to have the same ratio of spending cuts and tax increases as Bowles-Simpson, but it relies on a different baseline to get there — and that makes all the difference in the world.

What happens, however, if you apply Cooper-LaTourette to the baseline that Bowles-Simpson uses?  The ratio of spending cuts to tax increases becomes roughly 7:1.  So, as I wrote yesterday, the Cooper-LaTourette plan is far more tilted toward spending cuts, and far less toward tax increases, than Bowles-Simpson.

Ryan Budget Would Make Big Changes in Medicare

March 29, 2012 at 11:31 am

House Budget Committee Chairman Paul Ryan’s new budget provides much less detail than last year’s about his proposals in Medicare and other areas — too little for the Congressional Budget Office (CBO) to estimate their impact, as Brookings economist William Gale points out.  (CBO estimated that Chairman Ryan’s Medicare proposals last year would have driven up total health care spending and doubled the out-of-pocket costs of a typical 65-year-old.) 

Nonetheless, we can piece together a fair amount about Chairman Ryan’s updated plans for Medicare.  As my new paper explains, these include:

  • Replacing guaranteed coverage with a voucher. Most notably, the Ryan budget would replace Medicare’s guarantee of health coverage with a flat “premium support” payment, or voucher, that beneficiaries would use to buy either private health insurance or a form of traditional Medicare.  This would shift substantial costs to Medicare beneficiaries — especially for low-income beneficiaries also eligible for Medicaid; the Ryan plan would eliminate the supplemental benefits and help with premium and cost-sharing they receive through Medicaid without providing an adequate replacement.

    Adopting premium support would also, contrary to Chairman Ryan’s claim, likely lead to the demise of traditional Medicare by making its pool of beneficiaries smaller, older, and sicker — and increasingly costly to cover.

  • Raising the eligibility age. Starting in 2023, the Ryan budget would raise the eligibility age for Medicare — now 65 — by two months per year until it reaches age 67 in 2034.  It also would repeal health reform.  As a result, many 65- and 66-year olds would have neither Medicare nor access to health reform’s coming health insurance exchanges in which they could buy affordable coverage.
  • Rescinding health reform’s Medicare improvements. The Ryan budget would repeal health reform provisions that strengthen Medicare benefits, such as closing the gap in Medicare prescription drug coverage (known as the “doughnut hole”) and covering preventive services with no cost sharing.  These repeals would adversely affect both current and future beneficiaries.

Republican Study Committee’s Medicaid Cuts Even Bigger Than Ryan Plan’s

March 29, 2012 at 10:46 am

The House will vote today on a budget that the House Republican Study Committee has proposed as an alternative to Budget Committee Chairman Paul Ryan’s plan.  Our new analysis finds that the RSC plan:

proposes to end Medicaid and the Children’s Health Insurance Program (CHIP), and also to repeal the Affordable Care Act (ACA).  In place of Medicaid and CHIP, states would receive a single block grant payment each year equal to the amount of federal Medicaid and CHIP funding that they received in 2012, with no adjustment for increases in health care costs or the size of the U.S. population, or even for general inflation.

Because the block grant would be frozen at 2012 levels and not adjust annually for increases in enrollment (e.g., as the population ages) or rising health care costs, the RSC budget would slash Medicaid funding by $1.1 trillion — or 30 percent — over the next ten years, relative to current law.  (This does not count the loss of the substantial additional federal Medicaid funding that states would receive under the ACA to expand Medicaid but that they wouldn’t receive under the RSC budget because it would repeal the ACA.)  By 2022, federal funding would be 47 percent below what states would otherwise receive through Medicaid that year.  These funding cuts are even larger than those required under the severe proposal to convert Medicaid to a block grant and sharply cut its funding included in the Ryan budget plan.  The Ryan block grant would cut federal Medicaid funding by $810 billion — or 22 percent — over the next ten years, with federal funding 34 percent lower by 2022 (not counting the additional cuts from repealing the ACA’s Medicaid expansion).

Click here for the full report.