In Case You Missed It…

March 30, 2012 at 3:07 pm

This week on Off the Charts, we focused on House Budget Committee Chairman Paul Ryan’s budget, the federal budget, federal taxes, health policy, and poverty.

  • On the Ryan plan, Chuck Marr pointed out that it would be extremely difficult for Chairman Ryan to pay for his proposed tax cuts by cutting tax loopholes mainly for the wealthiest households, as he suggests, and we highlighted our report showing that the Ryan tax plan would provide $265,000-a-year tax cuts to the nation’s highest-income households.

    Jim Horney cautioned that the plan is unlikely to balance the federal budget for several decades.

    Paul Van de Water outlined the plan’s drastic and problematic Medicare proposals.

  • On the federal budget, we warned that the Medicaid cuts in the Republican Study Committee’s budget are even larger than those in the Ryan budget and explained why the budget from Reps. Jim Cooper and Steven LaTourette is well to the right of the Bowles-Simpson plan.

    Jim Horney further debunked the claim that the Cooper-LaTourette budget is as balanced as Bowles-Simpson and showed that the plan is tilted more toward spending cuts than its proponents claim.

  • On federal taxes, we noted that House Majority Leader Eric Cantor’s business tax cut would primarily benefit the wealthy and not create many jobs, and Chad Stone explained why “putting a price on carbon” would be smart energy policy and smart budget policy.
  • On health policy, Paul Van de Water rebutted claims that health reform’s tax on medical devices like pacemakers will seriously damage the economy, and January Angeles outlined the benefits to states of health reform’s Medicaid expansion.

    Also, in light of the two-year anniversary of health reform, Shannon Spillane noted several of its key accomplishments thus far, delineated some of the benefits set to take effect in the coming years, and corrected some common misconceptions about health reform.  She also explained health reform’s requirement that individuals have health coverage or face a penalty.

  • On poverty, Arloc Sherman showed that the Earned Income Tax Credit and Child Tax Credit lift millions of women and girls out of poverty.

In other news, we released reports on the Cooper-LaTourette budget, tax cuts for the wealthy in Chairman Ryan’s budget,  Medicare changes in the Ryan budget, Rep. Cantor’s business tax proposal, the Medicaid cuts in the Republican Study Committee and Ryan budgets, and the impact on states of health reform’s Medicaid expansion.

More Bogus Economics from the Medical Device Industry

March 30, 2012 at 12:33 pm

Industry lobbyists have trotted out still another bogus economic analysis in their campaign to repeal the health reform law’s 2.3-percent tax on medical devices (cardiac pacemakers, wheelchairs, surgical gloves, and so on).

A 2011 study financed by AdvaMed, an industry trade association, alleged that the tax would cause 10 percent of device manufacturing to move offshore, leading to the loss of 43,000 U.S. jobs.

In reality, however, the excise tax creates no incentive whatever for manufacturers to move production overseas, as we have explained.  It applies equally to imported and domestically produced devices, and devices produced in the United States for export are tax-exempt.

Bloomberg Government recently concluded that the study is “not credible.”

Now AdvaMed has commissioned another study, but it’s not credible either, and AdvaMed distorts its results.  AdvaMed hired the consulting firm Battelle to assess the effect of a “hypothetical economic event that results in a $3 billion decline in the [medical device] industry.”  (The medical device tax is projected to yield about $3 billion in annual revenues.)  Battelle uses what economists call an “input-output model” to conclude that this “hypothetical economic event” would cause a loss of 39,000 jobs — about 10,000 in the medical device industry itself and the rest in other sectors of the economy.

What’s wrong with this latest analysis?  First, there’s no reason to think that the medical device tax will cause a $3 billion drop in the sale of devices.  A 2006 study by Mathematica Policy Research found that demand for health-related items falls by just 2 percent for every 10 percent increase in price.  If this finding applies to medical devices, the Battelle study overestimates the tax’s impact on medical device sales (and thus on employment) by a factor of five.  Moreover, additional demand for medical devices from the millions of new customers who will gain insurance coverage through health reform could offset any drop in demand stemming from the tax.

Second, input-output models are not an appropriate way to analyze how changes in a given industry affect the economy as a whole because they don’t take into account any related changes in government fiscal or monetary policy.  For example, under the federal government’s “pay-as-you-go” law, Congress would have to offset the revenue loss from repealing the medical device tax by raising other taxes or cutting spending — either of which would reduce the demand for goods and services.  The Battelle study ignores that fact.

As The Economist rightly concludes, the effect of the excise tax on the medical device industry will be “trivial compared with other shifts,” such as “scandals, recalls, stingy customers, [and] anxious regulators,” all of which have left the industry in a “rut.”

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.