Congress Should Promptly Pass Core Provisions in SESA

October 13, 2011 at 5:35 pm

I testified today before the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity on how some of the Section 8 Savings Act (SESA) self-sufficiency provisions are promising, though improvements are needed, and on the risks of sharply expanding HUD’s “Moving-to-Work” demonstration. Here is the opening of my testimony:

The SESA discussion draft dated October 5 contains important improvements to the Section 8 housing voucher program and other federal rental assistance programs that were also contained in a draft of the bill released in June 2011.

These well-crafted measures would:

  • ease administrative burdens,
  • make it easier for private owners to participate in the voucher program,
  • establish voucher funding rules that would help local housing agencies use funds efficiently,
  • and generate more than $700 million in federal savings.

    Read more…

The 2009 Recovery Act — Even Better in Preventing Poverty Than We Thought

October 13, 2011 at 4:47 pm

We previously described the 2009 American Recovery and Reinvestment Act (ARRA) as one of the “most effective pieces of anti-poverty legislation in decades,” saying its temporary expansion of the safety net kept 4.5 million people out of poverty in 2009.  Actually, the impact was greater than we thought.

We now know that, when one follows recommendations from the National Academy of Sciences (NAS) on how to measure poverty more comprehensively, seven of ARRA’s provisions kept more than 6 million Americans above the NAS poverty line – that is, out of poverty – in 2009.

These ARRA effects (shown in the graph in red) included two new benefits — the Making Work Pay tax credit and a one-time payment of $250 to certain recipients of retirement and disability benefits — as well as expansions of existing benefits, such as the Child Tax Credit, Earned Income Tax Credit, unemployment insurance, and SNAP (formerly known as food  stamps).

Unlike the official poverty figures, which count family income from cash, the NAS-based measures count family income from both cash and cash-like sources and tax credits.  They also subtract child care and other necessary expenses from income and use a slightly modernized poverty line.  (The newest refinement of the NAS-based measures is called the Supplemental Poverty Measure, which the Census Bureau will unveil later this month.)

NAS-based poverty measures generate poverty rates that are modestly above the official 14.3 percent poverty rate (in this case, 15.7 percent in 2009 under the NAS version that most closely matches the original NAS recommendations) but are designed to reveal more accurately the composition of who is poor and who is not.  A major reason that our revised ARRA estimate is so much larger appears to be that the NAS measure — with its deductions for child care and other necessary expenses and its slightly higher poverty line — focuses more than the non-NAS measure we originally used on identifying the needs of low-income working families, a group that received substantial help from ARRA.

Later this month, the Census Bureau will release 2010 data under a variety of experimental poverty measures that are based on the NAS recommendations, including the new Supplemental Poverty Measure.  Like the official poverty figures released last month, these figures are likely to show that poverty got worse in 2010.  But they also will enable analysts to identify the effects on poverty of assistance that ARRA provided to families and individuals in the form of tax credits, nutrition assistance, and other programs.

In addition, in a paper for an upcoming academic conference, I note that, compared with the official poverty measure, the NAS measures show much less of an increase in poverty between 2008 and 2009.  That’s both because the safety net responded automatically — as it should — to the collapsing economy, absorbing growing numbers of increasingly impoverished applicants and participants, and because of the ARRA provisions discussed above.

Congressional Research Service Confirms: “Current U.S. Tax System Violates the Buffett Rule”

October 13, 2011 at 12:38 pm

When President Obama enunciated the so-called “Buffett Rule”— that millionaires shouldn’t pay lower tax rates than middle-income families — he raised an obvious question: how many millionaires are we talking about?  A new study by the Congressional Research Service (CRS) concludes:

  • “[T]he current U.S. tax system violates the Buffett rule in that a large proportion of millionaires pay a smaller percentage of their income in taxes than a significant proportion of moderate-income taxpayers.”
  • “Roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate income taxpayers (10% of the moderate-income taxpayers).”

The new CRS data use a broad measure of income (Adjusted Gross Income), and also attribute to shareholders their share of corporate taxes paid.  Clearly, despite suggestions in some news reports to the contrary, we are talking about more than just Warren Buffett and a few other individual millionaires.

Further, CRS underscored why making the tax code more consistent with the Buffett Rule would not only be fair and good fiscal policy, but would not harm small businesses, saving, or investment:

Tax reforms that are consistent with the Buffett rule would likely include raising tax rates on capital gains and dividends.  For example, the President has proposed allowing the 2001 and 2003 Bush tax cuts to expire for high-income taxpayers and taxing carried interests of hedge fund managers as ordinary income as tax reforms that observe the Buffett rule.  Research suggests that these tax reforms are unlikely to affect many small businesses or to deter saving and investment.

Senator Levin Provides More Required Repatriation Tax Holiday Reading

October 12, 2011 at 3:48 pm

Amidst a massive campaign to convince policymakers to grant U.S. corporations a second repatriation tax holiday, allowing them to pay sharply reduced taxes on overseas profits that they bring back to the United States, Chairman Levin’s majority staff on the Senate’s Permanent Subcommittee on Investigations has issued a timely analysis of how and why the first holiday of 2004 was such a complete failure.

Levin’s staff report adds to the recent drumbeat of analyses that have warned policymakers that a second holiday will not prove any more effective than the first in creating jobs and generating investment in the United States.

“We would not expect a significant change in corporate hiring or investment plans,” Goldman Sachs wrote last week.  “Another ‘one-time’ holiday may condition US multinationals to never routinely repatriate any foreign profits because, eventually, Congress can be expected to pass another ‘one-time’ tax holiday.  If so, this would constitute a significant structural change in US tax policy.”

A day later, Reuters distributed a story entitled, “Fitch slams proposed U.S. foreign profit tax break,” in which the ratings firm concluded that “a temporary tax holiday for U.S. firms repatriating foreign earnings is unlikely, if passed, to support growth-oriented investment by U.S. firms.”

Now comes the Levin report.  Among its findings:

  • “U.S. Jobs Lost Rather Than Gained. After repatriating over $150 billion under the 2004 American Jobs Creation Act (AJCA), the top 15 repatriating corporations reduced their overall U.S. workforce by 20,931 jobs.”
  • “Executive Compensation Increased After Repatriation. Despite a prohibition on using repatriated funds for executive compensation, after repatriating over $150 billion, annual compensation for the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30%, from 2005 to 2006.”
  • “Most Repatriated Funds Flowed from Tax Havens. Funds were repatriated primarily from low tax or tax haven jurisdictions; seven of the surveyed corporations repatriated between 90% and 100% of their funds from tax havens.”
  • “Offshore Funds Increased After 2004 Repatriation. Since the 2004 AJCA repatriation, the corporations that repatriated substantial sums have built up their offshore funds at a greater rate than before the AJCA, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.”

Adding Up States’ K-12 Funding Cuts

October 11, 2011 at 2:50 pm

We reported last week that 30 states are spending less per pupil on K-12 education this year than in the 2007-08 school year, before the recession started to take its toll on state budgets.  We’ve tallied those funding cuts and found that, in aggregate, those 30 states are sending $25.5 billion less to school districts under their basic education funding formulas than they did in 2008.

School districts must make up for that lost funding by increasing property taxes or other revenues, or — more commonly — by cutting their own budgets (reducing staff, buying fewer textbooks, deferring repairs and renovations, and so on).  Either way, that’s a hit on the local economy that families and businesses just about everywhere are feeling.

How much is $25.5 billion?  Enough to have a very big impact.  To give a sense of the magnitude, it’s enough to pay the salaries of about 460,000 teachers, at the average U.S. teacher salary rate of $55,000.

Schools haven’t covered the spending cut solely by laying off teachers, of course, but they have laid off many thousands of people and taken other actions that reduce economic activity.  Already since 2008, schools have cut 278,000 education jobs, even as student enrollment has grown. This year’s widespread funding cuts mean that the job losses and broader economic damage are likely to continue.