Reducing Deficits While Strengthening the Safety Net

October 3, 2011 at 1:46 pm

Alan Simpson and Erskine Bowles, the co-chairs of the President’s fiscal commission, make an important point in their new Washington Post op-ed:

The work done by our commission and others has shown that it is possible to reform entitlement programs in a way that preserves and even strengthens the safety net for the most vulnerable while achieving significant savings.

As we’ve noted, the three major deficit-reduction packages of the last two decades — those enacted in 1990, 1993, and 1997 — all adhered to the core principle that the Bowles-Simpson Commission report set forth and the Senate “Gang of Six” plan also would have honored:  deficit reduction must protect the disadvantaged and avoid increasing poverty and inequality.

In fact, all three of those enacted packages reduced poverty and inequality even as they shrank deficits, as a result of their inclusion of improvements in programs like the Earned Income Tax Credit (in the 1990 and 1993 packages) and their creation of the Children’s Health Insurance Program (in the 1997 package).

Members of the congressional “supercommittee” should keep this in mind as they prepare their own deficit-reduction package.

In Case You Missed It…

September 30, 2011 at 4:36 pm

This week on Off the Charts, we talked about taxes and deficits, poverty and unemployment, Medicare, TANF, Supplemental Security Income (SSI), and housing policy.

  • On taxes and deficits, Paul Van de Water laid out five reasons why the congressional “supercommittee” should consider revenue increases in order to produce a balanced deficit-reduction plan.  Chuck Marr rebutted an opinion piece in the Washington Post regarding millionaires and taxes.

    Read more…

Building a Better Future for Unemployment Insurance

September 30, 2011 at 1:57 pm

Most states have taken out federal loans to help pay for the surge in unemployment insurance (UI) benefits caused by the sharply higher unemployment of the past few years, and the first round of interest payments on those loans comes due today.  Because the UI system is funded through business taxes, states are financing these payments mostly by raising the taxes paid by employers. These tax increases, combined with additional employer tax increases required to cover the first loan principal payments due in January, are ill-advised at this time given the continued weak state of the economy.

The President has proposed a set of UI reforms that would avoid these tax increases on employers while the economy remains fragile and also accomplish something even more important — helping states build stronger UI systems for the future.  As we’ve explained, without reform most state UI trust funds will face the next recession still in debt from the current downturn or just barely solvent.  Either way, they’ll be in no shape to respond effectively to another surge in unemployment.

The President’s plan would:

  • Establish a moratorium on UI loan interest and principal payments for the next two years, saving businesses billions of dollars in higher taxes at a time when the economy is weak.
  • Raise the amount of a worker’s wages subject to the federal UI tax (which has remained frozen at $7,000 for nearly three decades), while lowering the federal tax rate (so there is no net federal UI tax increase) and allowing states to lower their UI tax rates.  This approach of broadening the base (which would apply to state UI tax bases, as well) while reducing the tax rate is similar to what a wide range of analysts have recommended for other kinds of tax reform.
  • Beginning in 2014, when the economy is on better footing, increase the currently slow pace at which states must repay the loan principal, so that states repay the loans more quickly and hence can move more quickly to replenish their depleted state UI trust funds.  This will make it more likely that states are better prepared for the next recession and won’t need to borrow as heavily, if not more heavily, from the federal government at that time.

The congressional “supercommittee” on deficit reduction should give the President’s proposal serious consideration.  It would help the economy in the near term and help restore the health of the nation’s UI system — a key stabilizer for reducing the depth of future recessions.  It also would reduce the deficit over the next ten years by $34 billion, according to the Congressional Budget Office.  Congress could strengthen the plan by adding provisions in a UI reform bill already before Congress that would give states more incentives to reform their UI financing systems, prepare adequately for future recessions, and maintain UI benefit levels.

Helping State TANF Programs Respond to Hard Economic Times

September 30, 2011 at 12:33 pm

As I noted in a recent post on Congress’ failure to fund TANF Supplemental Grants for 17 mostly poor states, one way to help offset the loss of that funding would be to redesign the TANF Contingency Fund. When Congress created the TANF block grant in 1996, it created the TANF Contingency Fund for states to draw upon during periods of economic distress. The goal was to address some of the risks and hardships that states would face as a result of the conversion of Aid to Families with Dependent Children (AFDC) — an entitlement program whose funding rose automatically in recessions — into a block grant with fixed federal funding. However, the fund is not well-designed to achieve its stated purpose.

Congress provided $612 million for the Contingency Fund for fiscal year 2012, which begins October 1, but only a minority of states — and not necessarily those with the greatest need — will qualify. Last year, just 20 states and the District of Columbia qualified. Several of the states that did not qualify — California, Florida, Georgia, Illinois, and Rhode Island, among others — have faced unemployment rates well above the national average.

Since the TANF bill that Congress passed last week extended the program for only three months, lawmakers will have an opportunity later this fall to revisit the Contingency Fund. We have proposed a redesign to correct the fund’s design flaws so that more states — and especially those with the greatest need — can qualify for it. An improved Contingency Fund would have the following features:

  • A simpler, updated economic hardship “trigger” to qualify a state for funds. Any state with an unemployment rate at or above 6.5 percent would qualify for money from the fund. The fund’s current triggers are out of date and unnecessarily complicated.
  • Receipt of funds for a longer period. States that hit the trigger should receive funds in that calendar quarter and the next three quarters, which would allow them to maximize their use of the additional funds without worrying about whether they will lose their eligibility in the next month or two. States currently qualify for funds on a month-to-month basis.
  • More narrowly targeted funding. Congress should limit the use of the Contingency Fund to subsidized employment and basic cash assistance, two categories of spending that are directly related to helping families meet their basic needs in hard economic times. Currently, states can use the Contingency Fund to meet any goal of the TANF program, many of which have no direct relationship to the hardships families are facing because of the economic downturn.
  • Requirement that a state increase its help to needy families. The amount of extra help for which a state can qualify should be based on the amount by which it has increased its spending above a base year in the targeted categories. This approach ensures that a state receives additional funds only for increased spending and can’t simply use the funds to replace existing spending.
  • Elimination of overly restrictive state spending requirements . The Contingency Fund’s maintenance-of-effort (MOE) provisions are complex and can hinder otherwise-eligible states from accessing the fund. If Congress adds the requirement above that a state increase its spending to qualify for Contingency Funds, the complex and restrictive MOE requirement is no longer needed.

During this recession, many states have been unable to respond to increased need because they have no extra funds to draw upon. The Contingency Fund is too small to help states respond fully, but the changes outlined above will make more effective use of available resources.

Elderly and Disabled Refugees Face SSI Cutoff

September 29, 2011 at 2:56 pm

Up to 4,600 impoverished elderly or disabled refugees will lose their Supplemental Security Income (SSI) benefits on October 1, when a temporary provision of law expires.  Several hundred more will lose their benefits each month thereafter.  Congress should act quickly to avert the severe hardship that this small but vulnerable group will face.

SSI provides a bare-bones income — $674 a month for an individual or $1,011 for a couple, about three-fourths of the poverty level — to elderly or severely disabled people who cannot work and have little or no income and few resources.

In the 1996 welfare law, Congress generally barred future immigrants from collecting SSI but made a limited exception for refugees, asylees, Cuban-Haitian entrants, and similar victims of human-rights violations.  Congress permitted those groups — who fled persecution in their home countries and typically arrived with nothing but the clothes on their backs — to receive SSI benefits for a certain period (if they otherwise met the program’s strict eligibility criteria) to give them time to become citizens.

In 2008, Congress overwhelmingly passed and President Bush signed a law lengthening the SSI eligibility period for refugees from seven years to nine.  But that law expires on October 1.  Up to 4,600 refugees who have been here for more than seven years will fail to get their SSI check for October, and several hundred more will hit the seven-year limit each month thereafter.

Lawmakers’ assumption that elderly and disabled refugees can readily become citizens and thereby retain SSI eligibility has turned out to be over-optimistic, for several reasons.  Refugees may not even apply for citizenship until they have been in the country for five years; asylees and similar groups face even longer waits (and much higher fees).

Applicants for naturalization must pass tests in English and civics — a steep hurdle for people who often had limited education in their home country and are elderly or seriously disabled.  And to become citizens, they must navigate a confusing bureaucracy, often without help from an attorney or friend who is knowledgeable on these matters.

The affected refugees come from the former Soviet Union, Afghanistan, Cuba, Ethiopia, Indochina, Iraq, Iran, Liberia, Somalia, Sierra Leone, Sudan, the former Yugoslavia, and other troubled places.  Some helped the United States in its overseas wars.  Unlike most refugees, who adapt to life in the United States, join the workforce, and need only a temporary helping hand, the small number who qualify for SSI can’t support themselves.

Representatives McDermott (D-WA) and Ros-Lehtinen (R-FL) have led efforts in the House to extend the nine-year rule; Senator Schumer is spearheading efforts in the Senate.  A permanent fix — repealing the time limit entirely — would be the best solution.  But most urgent is fast action to remedy the cutoff scheduled for October 1.