Off the Charts Blog | Center on Budget and Policy Priorities

The powerful Motion Picture Association of America came out with six-guns blazing last week, claiming that our new report on state tax subsidies for film and TV productions is “politically motivated” and “slipshod” and that the Center itself is “biased” and “prejudiced.”  But when you get past all the name-calling, MPAA’s press release doesn’t address — let alone disprove — our main argument, which is that these subsidies aren’t a cost-effective way for states to generate jobs and income.

MPAA asserts that the number of films shot in Massachusetts increased sharply after the state started subsidizing them.  But that’s not the whole story.  As our report explains, Massachusetts also conducted the most thorough, independent study of a film tax subsidy to date, and that study found that the subsidy’s cost far outweighed its benefits:

• Massachusetts lost $88,000 in tax revenue for every new job created by the Commonwealth’s film tax credit and filled by a Massachusetts resident.
• Every dollar of state tax revenue lost because of the film tax credit generated less than 69 cents in income for the Commonwealth’s residents.
• For every dollar of film tax credits awarded to film producers, the Commonwealth gained only $0.16 in revenue, mostly in the form of income tax revenues withheld from film company employees.  The remaining $0.84 had to be financed by higher taxes elsewhere or cuts in public services.  Independent studies of film subsidies in other states have estimated similar financial costs, ranging from $0.72 to $0.93 per awarded subsidy dollar.

The tax increases and cuts in services that states have to impose to pay for film subsidies take income and jobs out of the state’s economy, negating whatever small positive economic impact the subsidies may get by attracting new productions.  States would be better off eliminating these wasteful tax breaks and using the freed-up revenue to maintain vital public services and pursue development strategies that may be less glamorous but are more cost-effective, such as investment in education, job training, and infrastructure.

Two major budget plans issued in recent weeks would affect Social Security along with other federal spending and revenues.  The President’s fiscal commission is weighing the draft recommendations of co-chairs Alan Simpson and Erskine Bowles; the panel convened by the Bipartisan Policy Center — led by Pete Domenici and Alice Rivlin — has issued its final report.  Though far from perfect, the Domenici-Rivlin plan’s Social Security proposals represent a much more balanced and better-targeted mix of benefit cuts and revenue increases.

Both plans would achieve “sustainable solvency” in the program, according to the Social Security actuaries.  And some of the plans’ provisions overlap.  Both plans would:

• gradually hike the maximum amount of earnings on which workers and their employers pay Social Security taxes (currently $106,800) until it covers 90 percent of all earnings;
• use the so-called chained Consumer Price Index (rather than the Consumer Price Index for Urban Wage and Clerical Workers) for future cost-of-living adjustments in Social Security and other programs, as well as for indexing income-tax brackets;
• trim benefits to reflect rising life expectancy;
• enhance benefits for workers who received low wages through much or all of their long career; and
• adjust benefits upward for recipients who have been on the rolls for a long time, such as 20 years.

Both plans would also gradually extend coverage to the roughly 30 percent of state and local government employees who don’t participate in Social Security.

As CBPP has explained, the Bowles-Simpson plan’s Social Security recommendations are highly lopsided.  Two-thirds of the Social Security savings over the first 75 years come from benefit reductions rather than revenue increases; by the 75^th year, four-fifths of the savings come from benefit reductions.  As a result, the plan’s benefit reductions for people with modest incomes are much too deep.

The Domenici-Rivlin plan contains extensive benefit reductions as well, but the reductions are not as deep.  That’s because the plan would significantly broaden the base for the Social Security payroll tax.

• It would apply the payroll tax to the value of employer-sponsored health insurance benefits, phasing in that change between 2018 and 2028.  The growth of employer-sponsored fringe benefits has fueled cost pressures in the health-care system and eroded the Social Security tax base, as a rising share of workers’ total compensation has come in the form of untaxed benefits rather than taxed wages.  (This laudable proposal also appeared in Congressman Paul Ryan’s budget proposal, which otherwise is deeply flawed.)
• It also would apply the payroll tax to voluntary salary-reduction plans (such as “cafeteria” plans).  The tax already applies to 401(k) plans that workers use to save for retirement.

Because of these revenue measures, the Domenici-Rivlin package doesn’t need to cut benefits as sharply as the Simpson-Bowles plan.  Domenici-Rivlin gets roughly half of its savings in Social Security from increased revenues and half from benefit reductions.

The economy expanded at a 2.5 percent annual rate in the third quarter, according to a new Commerce Department estimate released today. Today’s estimate is higher than the preliminary estimate of 2.0 percent made a month ago, and it is slightly better than markets were expecting. But it’s not good enough to pull us out of the deep hole created by the Great Recession.

As the chart below shows, despite five straight quarters of economic growth, the demand for goods and services (“actual GDP”) remains about 6 percent ($955 billion) less than what the economy is capable of supplying (“potential GDP”). This large output gap is reflected in a high rate of unemployment and substantial idle productive capacity among businesses.

Recent economic growth rates have been barely enough to keep up with the growth in potential GDP arising from population growth and investment in new productive capacity. They are far too low to close the gap created by the recession and restore full employment anytime soon.

See our chart book for more charts on the legacy of the Great Recession.

In this podcast, we’ll discuss the findings of the US Department of Agriculture’s report on food insecurity that was released last week. I’m Michelle Bazie and I’m joined by Dottie Rosenbaum, Senior Policy Analyst with the Center.

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Dottie, what does the new USDA report show about food insecurity in the country?

Well let’s start by defining food insecurity.  Food insecurity is what happens when families lack the resources they need to get enough nutritious food to thrive.  This year, the Department of Agriculture found that the share of U.S. households that lacked access to adequate food at some point in 2009 remained at the highest levels since they began collecting these data in the mid-1990s.  At the same time, the share of households that were food insecure was roughly unchanged from 2008 to 2009, even though the economy was worsening, with the unemployment rate rising from 5.8 percent to 9.3 percent, and the poverty rate rising from 13.2 percent to 14.3 percent.

How many households does that amount to?

That means that about one out of every seven households lacked access to adequate food at some point in 2009 because they didn’t have enough money for groceries.  That’s about 17 million households containing more than 50 million people.   About 7 million of those households reported having to skip meals or take other steps to reduce their food intake because of the lack of resources.

You mentioned that food insecurity remained unchanged from 2008-2009.  What was the level before 2008 – when the recession really began to take hold?

In 2008, as the recession began, the food insecurity rate jumped from 11 percent to almost 15 percent – again the highest level since USDA began collecting these data in the mid-1990s.

What contributed to keeping food insecurity in check, despite rising unemployment and poverty?

A slight fall in food prices in 2009 had something to do with it.    Also important to understand were the effectiveness of the federal nutrition safety net — and the investments that were made through the 2009 Recovery Act in responding to increased need. In particular, the Supplemental Nutrition Assistance Program (or SNAP, what used to be known as Food Stamps) stepped in to help more families afford adequate food during hard times, as it’s designed to do.

How did SNAP have such a big impact?

In two major ways:

• First: The number of households receiving SNAP benefits increased by 25 percent over the course of 2009.  You see, SNAP enrollment expands automatically when the economy weakens and contracts in a strong economy. Because SNAP is available to almost any family whose net income is at or below the poverty line – which is about $22,000 for a family of four – it’s very responsive in supporting families and communities hit hard by economic downturns.
• Second: The Recovery Act increased the maximum SNAP benefit by 13.6 percent beginning in April of 2009, providing an additional $20 – $24 per person per month to help families buy groceries.  In total, the Recovery Act increased SNAP benefits by about $7 billion in 2009.

Dottie, what’s the bottom line here?

The troubling reality is that many Americans — one in every seven households — had difficulty affording food last year. The good news is that food insecurity would have been even worse if it weren’t for the SNAP program.

Thanks for joining me, Dottie.

Learn more about food insecurity in the United States here.

A few states have begun discussing “a once-unthinkable scenario” — dropping out of the federal-state Medicaid program — in an attempt to save money, the Wall Street Journal reported today.  Under one proposal, instead of expanding its Medicaid program in 2014 as the health reform law requires, a state would eliminate the program and give up federal Medicaid funding on the assumption that it could shift most beneficiaries into the new health insurance exchanges that the law will create, where they would get federally funded tax credits to buy health coverage.  The state would then cover the rest of the former Medicaid beneficiaries entirely with state funds and somehow come out financially ahead.

This proposal, however, relies on flawed assumptions and would be a terrible deal for a state:

• Most Medicaid beneficiaries — including those who cost the most to cover — actually can’t be shifted into the exchanges because they won’t be eligible for the federal tax credits. Only people with incomes between 100 and 400 percent of the poverty line will qualify for the credits, which means no poor Medicaid beneficiaries (except for some legal immigrants) will qualify.  For example, poor people with disabilities, who have the highest medical needs of any Medicaid beneficiaries and incur the most costs, won’t be eligible for the federal tax credits.Similarly, anyone who is eligible for Medicare won’t be eligible for the federal tax credits, so the millions of seniors whose incomes are low enough to qualify them for supplemental Medicaid benefits (like nursing home and other long-term care services) as well as Medicare won’t qualify.  This group alone represents 35 percent of all Medicaid costs.

• The loss of federal Medicaid funds would likely force states to slash their remaining health programs. Under current law, the federal government picks up 57 percent of the cost of a state’s Medicaid program, on average.  Since states will be unable to shift most of their Medicaid beneficiaries — and very few of the higher-cost people who constitute the bulk of current spending — into the exchanges, they’d have to somehow make up for the loss of these federal funds.Unless states were willing to as much as triple their current contributions to the cost of health care, they would have to severely curtail their health care spending.  Many would likely end up eliminating publicly funded coverage for large numbers of low-income children, pregnant women, parents, people with disabilities, and seniors.  Most of these people could well end up uninsured.

  For the people who remained eligible for publicly funded coverage, states might scale back benefits.  Possible reductions include benefits that are important to people with disabilities and children with special health care needs, such as mental health care and therapy services, which Medicaid covers but private insurance typically doesn’t.  States might also increase cost-sharing charges, which means fewer people would receive needed health care.

  And although states have already sharply reduced their reimbursement rates for Medicaid providers (such as doctors and hospitals) to help close their budget deficits, they would have to further lower their rates — at the same time that providers would face rising costs for uncompensated care costs as the ranks of the uninsured swell.

• The federal government will pick up nearly all the costs of the Medicaid expansion. Claims that the health reform law’s Medicaid expansion will impose unaffordable burdens on states ignore the fact that the federal government will cover virtually all of the cost — 96 percent of the cost over the next ten years,according the Congressional Budget Office.  The expansion will add just 1.25 percent to what states were already projected to spend on Medicaid over that period in the absence of health reform.