In Case You Missed It…

November 18, 2011 at 4:39 pm

This week on Off the Charts, we discussed Congress’ deficit-reduction “supercommittee,” the proposed constitutional balanced budget amendment, the economy, federal taxes, state budgets, and health reform.

  • On the supercommittee, Jim Horney explained why doing nothing would reduce deficits by $7.1 trillion over the next decade.  Paul Van de Water noted that the automatic cuts to non-defense discretionary spending that will occur if the committee doesn’t agree on a plan could be less severe than the cuts that the committee is considering.  Kathy Ruffing pointed out that most previous deficit-reduction packages have contained significant revenue increases.  And we featured two papers — one on the “Toomey proposal” to reduce deficits and one on a Democratic proposal issued in response to it.
  • On the balanced budget amendment, Robert Greenstein explained why a common comparison between a family budget and the federal budget is false.  We also highlighted two new papers on the budget cuts and economic problems that a constitutional balanced budget amendment would entail, as well as a video of Jared Bernstein and Jim Horney discussing the perils of a balanced budget amendment.
  • On the economy, we featured Chad Stone’s testimony before the congressional Joint Economic Committee on why tax reform is unlikely to boost business investment and job creation.
  • On federal taxes, Chuck Marr explained why a flat tax wouldn’t make the tax code simpler, just more regressive.  He also highlighted recent Congressional Budget Office data ranking a tax repatriation holiday last out of a number of job-creation proposals.
  • On state budgets, Phil Oliff explained that states’ progress in reducing income taxes on working-poor families stalled in 2010 and noted that a few states have even raised taxes on these families.  Michael Mazerov discussed legislation that would help states collect sales taxes owed on Internet purchases.
  • On health reform, Judy Solomon rebutted the claim that under the Affordable Care Act, residents of states that don’t establish a health insurance exchange won’t qualify for help buying coverage.

In other news, we released Chad Stone’s testimony on whether tax reform could boost the economy. We also released reports on the recent offers from Republicans and Democrats on the supercommittee, program cuts under a balanced budget amendment and the economic damage that such an amendment could cause, the composition of past deficit-reduction packages, and the impact of state income taxes on low-income families in 2010.

Examining Supercommittee Proposals

November 18, 2011 at 2:40 pm

We issued two reports today on deficit-reduction proposals in the congressional “supercommittee”:

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Latest Attack on Health Reform Falls Flat

November 18, 2011 at 1:08 pm

Under the Affordable Care Act (ACA), low- and moderate-income people who don’t have access to public coverage or affordable employer-sponsored coverage will get tax credits to help them pay the premiums for private coverage.  Most states will set up regulated marketplaces called “exchanges” where consumers will shop for coverage.  But in any states that don’t, the ACA calls for operation of a federal exchange in order to ensure that people have affordable coverage options.

Now, however, some opponents of the health reform law are arguing that people in states with a federal exchange aren’t eligible for the premium tax credits and that the Treasury Department violated the ACA when it issued a proposed rule that would provide the credits to eligible taxpayers in all states.  This misguided argument runs directly counter to the ACA’s clear intent.

As health law and policy expert Timothy Jost has pointed out, the same provision of the ACA that authorizes premium tax credits for participants in the state exchanges also requires all exchanges  — state and federal — to report to the federal government on the amount of advance payments of premium credits that taxpayers receive.  That wouldn’t make any sense if people in a federal exchange weren’t eligible for the credits.

Nor would it make sense for families in, say, Louisiana, which is planning to have a federal exchange, to pay hundreds of dollars more in premiums each year than otherwise-identical families in other states such as Maryland, which is already planning its own exchange.

More importantly, the overall structure of the ACA is designed to ensure that all Americans have a path to affordable coverage, regardless of where they live.  That’s why it provides for a federal exchange to operate in any state that doesn’t set up its own exchange.

Despite claims to the contrary, Treasury unquestionably got it right.  The claim that Treasury has somehow exceeded its authority here is, sadly, just one more misleading attack on health reform.

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Chad Stone Testifies on Why Tax Reform is Not an Effective Tool for Speeding Up the Economic Recovery

November 17, 2011 at 5:11 pm

I testified before the Congressional Joint Economic Committee (JEC) at a hearing today examining how tax reform could help boost business investment and job creation.

Here are the highlights:

My reading of the economic evidence is that tax reform is unlikely to be an effective tool for speeding up economic growth in the short run.  Tax reform could be a useful tool for enhancing growth in the longer run, but only in the context of a sound overall program for achieving long-term fiscal stabilization and not if it is used as an excuse to avoid the revenue increases that must necessarily be a part of any credible, sustainable deficit-reduction plan…

[T]he major factor holding back investment and job creation in the current economy is weak sales due to inadequate aggregate demand and slow economic growth.  Policies that increase aggregate demand are the best short-term policies for creating a more favorable environment for investment and job creation, and tax reform policies typically operate on the supply side of the equation.  Measures like those in the President’s American Jobs Act are likely to be much more effective at boosting aggregate demand and closing the jobs deficit — without adding to the long-term budget deficit, because they are temporary…

[I]n the longer run…it makes sense to embrace an enduring principle of tax reform — that a broader tax base allows rates to be lower than a narrower tax base, but we also have to ensure we have enough revenue to pay for the things we want government to do — ranging from national defense to an adequate safety net.

You can read the full testimony here.

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Why Doing Nothing Would Reduce Deficits by $7.1 Trillion

November 17, 2011 at 2:02 pm

E. J. Dionne’s Washington Post column today cites my estimate that we could reduce deficits by $7.1 trillion over the next decade simply by letting various temporary tax and spending policies expire on schedule.

CBPP doesn’t favor letting all of these policies expire or using all of the savings for deficit reduction.  Still, the massive potential savings from inaction show why the nation would be better off if the “supercommittee” fails to reach a deficit-reduction deal than if it reaches a deal that is highly unbalanced and calls for the largest sacrifices from those least able to bear them.

Doing Nothing Would Reduce Deficits by $7.1 Trillion Over Ten Years

Below is the memo I sent E. J. Dionne explaining my $7.1 trillion estimate, which he has also reprinted in his blog.

Budget experts agree that federal budget deficits and debt will grow to unacceptable levels in coming years and decades if policymakers do not make changes in current policies.  What’s also true, but less widely discussed, is that, under current law, changes in current policies that would reduce deficits to acceptable levels will take place unless Congress intervenes to stop that from occurring.  That is, Congress can reduce deficits to acceptable levels simply by not passing certain new legislation.

The projections of growing deficits and debt under current policies assume that Congress will enact laws to extend a number of current tax and spending policies that are scheduled to expire.  They also assume that the Joint Select Committee on Deficit Reduction (the “Supercommittee”) will not produce $1.2 trillion in deficit reduction over 10 years and that Congress will then enact legislation to prevent the automatic across-the-board spending cuts (the “sequestration,” which is supposed to occur if the Joint Committee fails to achieve its goal) from taking effect.

What would happen, however, if Congress did not do any of those things? Deficits would be more than $7.1 trillion lower over the next 10 years, and the budget would be nearly balanced in 2021.  The savings from such inaction would be:

  • $3.3 trillion from letting temporary income and estate tax cuts enacted in 2001, 2003, 2009, and 2010 expire on schedule at the end of 2012 (presuming Congress also lets relief from the Alternative Minimum Tax expire, as noted below);
  • $0.8 trillion from allowing other temporary tax cuts (the “extenders” that Congress has regularly extended on a “temporary” basis) expire on schedule;
  • $0.3 trillion from letting cuts in Medicare physician reimbursements scheduled under current law (required under the Medicare Sustainable Growth Rate formula enacted in 1997, but which have been postponed since 2003) take effect;
  • $0.7 trillion from letting the temporary increase in the exemption amount under the Alternative Minimum Tax expire, thereby returning the exemption to the level in effect in 2001;
  • $1.2 trillion from letting the sequestration of spending required if the Joint Committee does not produce $1.2 trillion in deficit reduction take effect; and
  • $0.9 trillion in lower interest payments on the debt as a result of the deficit reduction achieved from not extending these current policies.

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