New Poverty Measure Shows Government’s Anti-Poverty Impact

November 9, 2011 at 11:52 am

[This commentary, on the experimental measure of poverty that the Census Bureau released this week, first appeared in Spotlight on Poverty and Opportunity.]

The Census Bureau’s release of the Supplemental Poverty Measure (SPM) makes clear, in a way that the traditional poverty measure cannot, that federal and state programs significantly reduce the extent and depth of poverty.

The official measure counts only cash income and does not include in-kind benefits or tax credits, whereas the SPM captures a much broader array of safety net programs. The SPM shows that on an ongoing basis, but especially in response to this recession, the Earned Income Tax Credit kept approximately six million above the poverty line in 2010, and the Supplemental Nutrition Assistance Program (formerly food stamps) kept more than four million above the poverty line. This provides proof that these programs help protect American families from poverty caused by low pay, job loss, disability, old age, and other vulnerabilities and misfortune that President Franklin Roosevelt called the “vicissitudes of life.” Such findings come when many benefits are under attack, and they serve as a powerful antidote to the myth that this assistance can be cut without significant harm. Policymakers should take heed and extend or protect these polices.

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A Permanent Corporate Tax Holiday at an Even Lower Rate?

November 8, 2011 at 3:39 pm

Even as the business community spends millions of dollars lobbying Congress for a large, temporary tax cut on foreign profits that corporations repatriate to the United States, Republicans on the House Ways and Means Committee are proposing a larger, permanent tax cut on those profits.

So if you think a repatriation holiday is a bad idea (and evidence from a range of independent studies shows you’re right), then the GOP proposal to adopt a territorial system of international taxation is an even worse idea — a “repatriation holiday on steroids,” as former Joint Tax Committee chief of staff Edward Kleinbard puts it.

Under a repatriation holiday, corporations would get a bargain-basement tax rate of 5.25 percent on repatriated profits, compared to the regular 35 percent rate they pay on domestic profits.  Proponents claim this would create domestic jobs and economic growth.  But, that didn’t happen when Congress enacted a holiday in 2004, and Wall Street analysts like Goldman Sachs have concluded that another holiday would have only minimal economic impact.

Also, as the Joint Tax Committee and others have pointed out, another repatriation holiday would add billions to deficits.

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Balanced Budget Amendment = Bad News for the Economy

November 8, 2011 at 2:25 pm

With the House planning to vote next week on a constitutional balanced budget amendment (BBA), we’ve issued a brief paper highlighting a scathing analysis of a BBA from Macroeconomic Advisers, a leading private economic forecasting firm.

“[R]ecessions would be deeper and longer” under a BBA, the analysis warns, and uncertainty would be cast over the economy that could retard economic growth even in normal economic times.

Below are some excerpts from the Macroeconomic Advisers analysis:

  • “Suppose in 2008, when the deficit seemed manageable, a BBA had been sent by Congress to the states, that it was ratified this fall, and enforced for FY 2012.  The effect on the economy would be catastrophic.”

    If the 2012 budget were balanced through spending cuts, those cuts would total about $1.5 trillion in 2012 alone, the analysis estimates.  Those cuts would throw about 15 million more people out of work, double the unemployment rate from 9 percent to approximately 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.

  • “The pall of uncertainty cast over the economy if it appeared a BBA could be ratified and enforced in the middle of recession or when the deficit was still large would have a chilling effect on near-term economic growth.”

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Supercommittee Won’t Get Anywhere Near $600 Billion in Medicare Savings Without Harming Lower-Income Beneficiaries

November 8, 2011 at 10:17 am

The Committee for a Responsible Federal Budget issued a blog post November 4 contending that, contrary to a CBPP post last week, the Joint Select Committee on Deficit Reduction can get $600 billion in Medicare savings without harming low-income beneficiaries.  CRFB listed seven proposals that it said would save $607 billion without adversely affecting those with low incomes.

But these proposals would not get the job done.

  • CRFB’s proposed large savings in drug rebates and provider payments are extraordinarily unrealistic from a political standpoint.  Policymakers would have to substitute other cuts to reach the $600 billion target.
  • CRFB’s proposed increases in cost-sharing would have a serious impact on sicker low-income beneficiaries unless accompanied by provisions to shield those beneficiaries, which would reduce the savings well below the amounts that CRFB shows.
  • Contrary to CRFB’s claim, simply providing for cancellation of an increase in the Medicare eligibility age from 65 to 67 if Congress repeals the Affordable Care Act (ACA) is not adequate to protect lower-income 65- and 66-year-olds, who could be left uninsured if the Medicare age is raised but the new health insurance exchanges that the ACA establishes cannot function effectively as a result of a Supreme Court decision striking down the law’s “individual mandate,” state resistance, or other factors.  (This is why policymakers should not consider this proposal until we know that the exchanges are indeed functioning adequately.)

As a result, if the Joint Committee seeks $600 billion in cuts from Medicare (or from Medicare and Medicaid), many low-income beneficiaries will almost certainly be harmed.

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Exploding, Once Again, the “Non-Payer” Tax Myth

November 7, 2011 at 5:07 pm

Have you heard the one about how nearly half of Americans don’t pay taxes?  Nonsense, as the recent Congressional Budget Office report on income inequality reminds us.

Low- and Middle-Income Households Pay Significant Payroll Taxes

As we have explained, in a typical year around 35-40 percent of households don’t owe any federal income tax. But most of them pay a significant share of their incomes in other taxes — particularly payroll taxes, as the CBO report points out:

  • People in the bottom four-fifths of the income scale pay more in payroll taxes than federal income taxes, on average.  The Tax Policy Center estimates that payroll taxes (including both the employee and employer shares) outweigh federal income taxes for 82 percent of households.  (Most economists agree that workers pay not only the employee share of payroll taxes but the employer share as well in the form of lower wages.)
  • Working-poor and middle-class Americans pay a much larger share of their incomes in payroll taxes than high-income people do (see graph).  That  gap has increased over the past 30 years, the CBO report shows.  In addition, the share of federal revenues coming from payroll taxes has gone up while the share coming from income taxes has gone down.
  • When you count all federal taxes (income, payroll, and excise), even people in the bottom fifth of the income scale are net federal taxpayers, on average.  This group, whose after-tax incomes averaged just $17,700 in 2007, paid 4.7 percent of their incomes in federal taxes that year.

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