In Case You Missed It…

February 10, 2012 at 5:01 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, state budgets, safety-net and entitlement programs, and health care.

  • On the federal budget and taxes, James Horney showed that a Senate proposal to cancel the spending cuts scheduled for 2013 would expand the cuts in later years.Paul Van de Water explained that House proposals to cap federal spending would disproportionately hurt low-income people and have other harmful impacts.

    We also featured a video of Jared Bernstein and Richard Kogan discussing the national debt.

  • On the economy, Hannah Shaw explained that policymakers aren’t adequately supporting job training and education programs for unemployed workers, and we excerpted Jared Bernstein’s Senate Budget Committee testimony on the causes and policy implications of rising income inequality.
  • On state budgets, Nicholas Johnson outlined some dos and don’ts to improve state economies and highlighted a report debunking the claim that state income taxes impede growth.Phil Oliff warned that lagging state funding has driven up the cost of public colleges.
  • On safety-net and entitlement programs, Bob Greenstein discussed some holes in the safety net that need repair.  Chad Stone explained that the expansion of safety-net programs during the Great Recession shows that they worked as intended.Arloc Sherman corrected the misconception that entitlement programs are creating a dependent class of Americans who would rather collect government benefits than work by showing that the vast majority of benefits go to the elderly, disabled, or members of working families.
  • On health care, Sarah Lueck cautioned that an Administration proposal would give insurance companies too much leeway to set benefits under health reform.

In other news, we released an analysis of who receives benefits from federal entitlement programs, reports on proposed House spending-cap bills and ways that states can strengthen their fiscal policies, and Jared Bernstein’s testimony before the Senate Budget Committee on assessing inequality, mobility, and opportunity.

Want to Promote Job Training and Adult Education? Then Fund Them Adequately

February 10, 2012 at 4:32 pm

House Republicans say that the proposals they are pushing in negotiations over continuing emergency federal unemployment insurance (UI) will “promot[e] more job search and education and training needed to help the unemployed get back to work sooner.”  In reality, those changes would be fundamentally unfair to jobless workers and do little if anything to put them back to work.

Funding for Job Training and Adult Education Well Below 2008 LevelsThe House GOP proposal to continue emergency federal UI benefits would require UI recipients to have a high school diploma or GED or be enrolled in classes to get one.  Not only would such a policy deny benefits to workers who have worked for years or even decades — and effectively paid UI taxes during that period (economists agree that employers generally pass on the tax in the form of lower wages) — and then were laid off, but it would do little or nothing to improve their job opportunities.  Every state had waiting lists in local adult education programs in 2009-2010, according to the most recent survey — in part because of federal and state budget cuts (see below) — so jobless workers would be hard-pressed to comply with a requirement for a high school diploma or GED in a timely manner, leaving them without UI benefits indefinitely.

House Republicans would also allow states to use UI funds for purposes other than paying UI benefits.  This would undermine the fundamental purpose of the UI system since its creation in the 1930s: providing temporary financial support for individuals with work histories who have lost a job through no fault of their own.

While states could use the diverted UI funds to expand job training, they also could use them to replace state or local funding for job training and then shift the withdrawn funds to other uses, including tax cuts.  The net result could be a reduction in UI benefits with little or no offsetting increase in employment services.

If policymakers really want to improve outcomes for less-educated, lower-skilled workers, they need to invest more in job training and adult education programs to make them more available and effective.  Unfortunately, they’ve done the opposite.  House Republicans have backed the large cuts that Congress has made in federal funding for job training and adult education in recent years and have pushed for even bigger cuts.

As the chart shows, federal funding for both job training and adult education is well below levels set before the recession began — and the cuts in job training would have been much deeper under the House-passed version of the 2012 budget.

Further cuts are likely as Congress seeks to comply with the Budget Control Act’s annual caps on discretionary spending.  Moreover, state budget cuts have exacerbated this problem.

Helping unemployed workers improve their skills is important — especially while jobs remain extremely hard to find (there are four job-seekers for every available job).  But job training, adult education, and other such services should complement basic unemployment compensation, not replace it.

Video: Jared Bernstein and Richard Kogan Discuss the Budget, Debt, and the Economy

February 10, 2012 at 4:22 pm

CBPP Senior Fellows Jared Bernstein and Richard Kogan explain why the claim that the rise in the national debt in recent years places an unfair burden on future generations is “wrong in a lot of different ways.”

The False Claim That State Income Taxes Impede Growth

February 10, 2012 at 3:32 pm

My list of “dos and don’ts to improve state economies” earlier this week advised states to ignore wild-eyed claims that broad-based tax cuts would strengthen state economies.

The Institute on Taxation and Economic Policy (ITEP) has a new report debunking one such claim:  the assertion by economist Arthur Laffer and the American Legislative Exchange Council, recently echoed by the governors of Kansas and Oklahoma, that states with high income tax rates have fared worse economically over the last decade than other states — particularly states with no income tax.

In reality, writes ITEP, the reverse is true:

[R]esidents of “high rate” income tax states are actually experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax. … [T]he nine “high rate” states identified by Laffer have actually seen more economic growth per capita over the last decade than the nine states that fail to levy a broad-based personal income tax. Moreover, while the median family’s income, adjusted for inflation, has declined in most states over the last decade, those declines have been considerably smaller in “high rate” states than in those states lacking an income tax entirely. Finally, the average unemployment rate between 2001 and2010 has been essentially identical across both types of states.

A key flaw in the Laffer analysis is that all of its measures of “economic growth” are really just measures of population growth.  As a state’s population grows, you would expect its total number of jobs and its total economic output to grow with it. But, that’s not the same thing as a state’s per capita performance.  That’s why, to see how a state’s economy is serving its people, you have to strip away the distorting effects of population growth.

As ITEP explains:

The Laffer analysis distorts reality by focusing on a number of variables that are very closely related, including population growth, total employment growth, and total growth in economic output (GSP).  Since a larger population brings with it more demand, it’s only natural that states experiencing the fastest population growth would also experience more growth in the total number of jobs and total amount of economic output.  Simply put, the Laffer analysis is hugely distorted by its failure to acknowledge the importance of population changes to the variables it presents.

State policymakers considering big income tax cuts this year should heed ITEP’s conclusion:  “There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies.”

Will Insurers Get Too Much Leeway to Set Benefits Under Health Reform?

February 10, 2012 at 1:08 pm

All too often, Americans with private health coverage discover their policy has major holes at exactly the wrong time — when the treatment they need is not covered.

To ensure that people have access to comprehensive coverage, the health reform law (Affordable Care Act, or ACA) calls for the Department of Health and Human Services (HHS) to establish a set of “essential health benefits” that most insurers in the individual and small-group markets must cover starting in 2014.  Unfortunately, HHS’ initial proposal contains a troubling element for consumers.

As widely reported, the proposal would let each state designate one of several specified health plans — for example, one of the three largest plans in the state’s small-group market — as its benefits “benchmark.”  That plan would then set the standard for the “essential health benefits” in that state. What’s received much less attention, however, is that insurance companies could then deviate from the benchmark as long as the benefits they offer are “substantially equal” to the benchmark plan’s benefits.

In other words, insurers could provide less coverage of an item or service than the state’s benchmark as long as they provided more coverage elsewhere.  An insurer, for instance, might be able to limit occupational therapy coverage to 15 visits per year, compared to a state’s benchmark of 30, while covering more visits of physical therapy than the benchmark.  Or an insurer might impose a limit that is not part of a state’s benchmark  — such as on kidney dialysis treatments — and increase coverage elsewhere to make up for it.

Allowing insurers to significantly vary from a state’s benchmark would make it much harder for consumers to make informed choices about which health plan to purchase.  Consumers would have to wrestle with potentially significant (and hard to understand) variations in benefits, such as differences in what’s covered and to what extent.  Consumers already will have to wrestle with differences in cost-sharing charges, provider networks, and other elements that are expected to vary widely between plans, so this proposal to give insurance companies additional leeway would burden consumers even more.

In addition, some insurers would likely design their benefit packages in ways that attract healthier people (who cost less to cover) while discouraging sicker ones.

A number of stakeholders have raised similar concerns about the proposal, including the American Cancer Society Cancer Action Network, the American Academy of Actuaries, and officials in Rhode Island and New York State.

One key ACA goal is to encourage insurers to compete primarily on the price and quality of their products, not on their ability to deter enrollment by those in poorer health, as they do today.  Allowing insurers to vary from a state’s benchmark plan would impede progress toward this goal. HHS should drop this element of its proposal.