Off the Charts Blog | Center on Budget and Policy Priorities

A new report from the non-partisan Congressional Research Service (CRS) explains that permanently extending all of President Bush’s tax cuts would be extraordinarily expensive — CRS estimates the cost at $5 trillion over the next decade alone.  The report recognizes that Congress, in deciding the future of the tax cuts, will need to consider the current weak economy as well as our unsustainable long-term budget path.  But, it concludes, letting the Bush tax cuts aimed at the nation’s wealthiest 2 percent of households expire on schedule at the end of December makes sense from both perspectives.  Here are the key quotes:

[A]llowing the tax cuts targeted to high income taxpayers to expire as scheduled could help reduce budget deficits in the short-term without stifling the economic recovery.

Increasing tax rates for the richest 2% of taxpayers (by allowing the high income tax cuts to expire) will likely neither significantly decrease consumer expenditures nor adversely affect small business and job growth.

In January, a report from the non-partisan Congressional Budget Office (CBO) found that extending the high-end Bush tax cuts would provide less bang-for-the-buck, in terms of job creation and economic growth, than any other option CBO analyzed.  For example, extending President Obama’s Making Work Pay tax credit, which benefits more than 90 percent of working Americans but is also scheduled to expire in December, would generate two to three times as much growth and jobs as extending the high-end tax cuts, CBO found.

These two reports underscore a basic economic principle:  tax cuts have the biggest impact when they focus on people who live paycheck-to-paycheck — like working middle-class families — since they’ll generally spend their tax cuts rather than save them.  Let’s hope policymakers read both of these reports as the debate over the tax cuts intensifies.

This week on Off the Charts, we blogged about health reform, unemployment, housing, state budgets, and the economy.

• On health reform, we outlined how states can best structure their health insurance exchanges, and Shannon Spillane explained that health reform is not at fault for this year’s increases in insurance premiums.
• On unemployment, Chad Stone highlighted the risks of allowing emergency unemployment benefits to expire.
• On housing, Will Fischer explained why the federal government should adequately fund public housing.
• On state budgets, Phil Oliff discussed the recession’s continuing impact on states.  Jon Shure outlined several state ballot initiatives that could make it easier for states to maintain public services — and several others that could make it much harder.
• On the economy, Chad Stone explained that slow economic growth and the large jobs deficit the nation faces demonstrate the need for another stimulus measure.

In other news, the Center released a podcast on the recession and states (on iTunes here).

“You’re gonna need a bigger boat,” Roy Scheider’s character announces in the movie Jaws when he sees the size of the shark they’re hunting.  Today’s Commerce Department report on the economy is just the latest evidence that we’re going to need a bigger stimulus to address the Jaws-sized jobs deficit the nation faces.

The report shows that real (inflation-adjusted) gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter.  That’s about what was expected and was slightly better than the second quarter’s 1.7 percent growth.  As the chart below shows, the U.S. economy has expanded for five straight quarters.

But the recovery is losing steam, and final sales of domestically produced goods and services (that is, the part of GDP left over after subtracting inventory accumulation by businesses) are growing even more slowly than overall GDP.

It would be good news if businesses were building up their inventories in anticipation of future sales growth.  But what we are seeing now looks more like unsold goods piling up on the shelves in the face of weaker-than-expected consumer demand.

Policymakers are staring into the maw of a gaping jobs deficit with an underpowered economy, but unlike the shark hunters in Jaws, there is something they can do about it.  The chart below estimates how the 2009 Recovery Act, supported by actions by the Federal Reserve to keep interest rates low, helped turn the economy around faster than if no action had been taken.

It’s time for Congress and the Fed to take the bold actions necessary to give the economy a further boost.  Congress can start by making sure that emergency unemployment insurance benefits do not expire at the end of November and by renewing the TANF Emergency Fund, which has helped create jobs for nearly 250,000 Americans.

As Americans renew their health insurance for the coming year, many are finding their premiums are going up.  Insurance companies are raising rates — in some cases dramatically — and some are telling their customers that the new health reform law is to blame, as NPR reported this morning.  But as the NPR story explains, health reform is hardly at fault for rising premiums.

The reality is that premiums have been rising for years.  The cost of family coverage provided through an employer has gone up nearly 9 percent a year over the last decade, on average.

The primary reason for this year’s premium increases is the same one that has driven up premiums much faster than inflation over the years:  rising health care costs.   Even the insurance industry’s trade group, America’s Health Insurance Plans, acknowledges that.  The good news, as we’ve explained here, is that the health reform law will take important first steps toward bringing health care costs under control in the years ahead.

In some cases, insurers are imposing premium increases that are simply unjustified.  In California, for example, the state found that insurers offering coverage in the individual market made significant errors in calculating their premium increases.  Fortunately, the health reform law gives states new resources to help them review insurers’ premium increases to ensure that they actually reflect rising health care costs.

The new law does play a small role in the rise in premiums for next year, perhaps causing about 1-2 percentage points of the increase.  In exchange for that, however, consumers are getting important new benefits and protections.  For example, insurance companies will no longer be able to impose lifetime limits on health benefits or cancel beneficiaries’ coverage when they get sick, and children can stay on their parents’ health plans until age 26.

Many low-income families living in public housing have to cope with crumbling ceilings, faulty plumbing, and other unmet repair needs, the New York Times reported Monday.  The main cause is a lack of capital funding to repair and renovate the developments, most of which were built decades ago.  Fixing this problem is critical to the long-term success of this essential program.

The federal government has underfunded public housing for much of the program’s seven-decade history and made especially deep cuts from 2002 through 2006 (see graph).  The 2009 Recovery Act included $4 billion that local housing agencies are using to repair many public housing developments — and, in the process, help preserve jobs in the hard-hit residential construction sector.  But with the developments’ overall repair needs estimated at over $20 billion, much of the problem remains unaddressed.

This underfunding has put at risk the vital, though often underappreciated, safety net that public housing provides for more than 2 million low-income Americans.  Almost two-thirds of families in public housing have at least one member who is elderly or has a disability; most other residents are working families with children.  The stability that public housing provides these families is particularly crucial today, with job losses high and homelessness rising among families with kids.

And as the Times’ story makes clear, the federal government’s failure to address public housing’s repair needs is penny wise but pound foolish.  Minor problems like drafty windows or leaky roofs can drive up utility bills or lead to more severe damage that will be costlier to repair.  In fact, many public housing developments have already deteriorated to the point where housing agencies have had no choice but to demolish them, wasting decades of federal and local investment.

The Administration has proposed an aggressive plan to give agencies more adequate public funding for public housing, as well as greater access to private financing.  While Congress should strengthen the proposal — Preservation, Enhancement, and Transformation of Rental Assistance (PETRA) —in some ways, it offers a promising framework for preserving public housing developments over the long term.

More immediately, Congress will set funding levels for public housing when it finalizes the 2011 appropriations bills after the election.  The full House and the Senate Appropriations Committee have each approved funding close to (or slightly above) last year’s level for operating and renovating public housing, but public pressure has since grown to cut federal spending in a wide range of areas.  Slicing public housing funding below current levels would only increase the program’s unmet needs.