Obama Plan to Raise Rents on Rural Poor is the Wrong Way to Save Money

April 11, 2014 at 12:30 pm

About 42,000 extremely poor families — 15 percent of those assisted through the Agriculture Department’s (USDA) rural rental assistance program — could face rent increases of up to $600 a year under a proposal in President Obama’s 2015 budget.

Today, families with rural rental assistance must pay 30 percent of their income for rent and utilities.  The President’s proposal would require property owners to charge families a minimum of $50 a month — even if this exceeds 30 percent of their income.  Many of those who would be affected are especially vulnerable to hardship:  64 percent of households with USDA rental assistance have a head (or the head’s spouse) who is elderly or has a disability, and 135,000 children live in low-income families receiving such assistance.

USDA budget documents say that one goal of the proposal is to “encourage financial responsibility in tenants, increasing their opportunity for success on the path to homeownership.”  But there is no evidence that requiring destitute families to pay $50 a month helps them get back on their feet.  To the contrary, a growing body of research shows that extreme poverty — which the USDA proposal would exacerbate — does long-term damage to children’s neural development and education and employment prospects.

A second goal is to save money.  USDA estimates that the policy will reduce program costs by $5 million in 2015 and $20 million annually in later years.  But policymakers could surely find better ways to save $20 million a year than raising rents on some of the most vulnerable people in rural America.

USDA points out that some households with rental assistance through the Department of Housing and Urban Development (HUD) must pay $50 minimum rents.  But no major HUD program imposes a program-wide $50 minimum rent like USDA has proposed.  HUD’s supportive housing programs for the elderly and people with disabilities do not charge a minimum, while the Section 8 Project-Based Rental Assistance program has a $25 minimum rent and state and local agencies administering Housing Choice Vouchers and Public Housing can set the minimum below $50 or have no minimum at all.

USDA has also claimed that a proposed exemption for families who would face hardship from minimum rents — modeled on similar exemptions in HUD programs — would minimize any adverse consequences.  Tony Hernandez, the Administrator of USDA’s Rural Housing Service, told a House Appropriations subcommittee that households with incomes of $2,000 a year “probably would not have to pay because they would be exempted because of the hardship clause.”

But experience in the HUD programs indicates that very few would likely be exempted.  As we’ve noted, the HUD hardship policies have had little impact, partly because they require tenants — many of whom have physical or mental disabilities or very low education levels — to seek out exemptions.  A 2010 HUD study found that 82 percent of state and local housing agencies that chose to impose minimum rents exempted less than 1 percent of affected households.  (Moreover, the minimum rent proposed by USDA would fall almost exclusively on families with incomes close to or below $2,000, so if most of those families were exempted, the policy’s savings would largely disappear.)

Families facing hardship might have an even harder time obtaining exemptions in the USDA rental assistance program, where small rural property owners with limited administrative capacity would be responsible for implementing the hardship policy.  The best way to protect these families would be to reject the President’s proposal.

Just the Basics: Where Our State Tax Dollars Go

April 11, 2014 at 9:40 am

As Tax Day approaches, we’ve updated several backgrounders that explain how the federal government and states collect and spend tax dollars.  As policymakers and citizens weigh key decisions on how best to shape our future government, it’s helpful to examine where the dollars that comprise the budget come from and where they go.

The final installment in our series of revised “Policy Basics” backgrounders explains where our state tax dollars go.

In total, the 50 states and the District of Columbia spent a little more than $1 trillion in state revenues in fiscal year 2012, according to the most recent survey by the National Association of State Budget Officers.  (This figure does not include the federal funds that states also spent that year.)

By far the largest areas of state spending, on average, are education (both K-12 and higher education) and health care.  But states also fund a wide variety of other services, including transportation, corrections, pension and health benefits for public employees, care for persons with mental illness and developmental disabilities, assistance to low-income families, economic development, environmental projects, state police, parks and recreation, housing, and aid to local governments (see chart).

The figure above shows how states spend their tax dollars on average for the entire country.  But the specific mix of spending varies from state to state, depending on such factors as how the state and its localities share funding responsibilities for public services and how much state policymakers choose to invest in health care, education, and other areas.

Click here to read the full backgrounder.

Ryan Budget Gets 69 Percent of Its Cuts From Low-Income Programs [Updated]

April 10, 2014 at 5:10 pm

Some 69 percent of the cuts in House Budget Committee Chairman Paul Ryan’s new budget would come from programs that serve people of limited means, our recently released report finds.  These disproportionate cuts — which likely account for at least $3.3 trillion of the budget’s $4.8 trillion in non-defense cuts over the next decade — contrast sharply with the budget’s rhetoric about helping the poor and promoting opportunity.

The low-income cuts fall into five categories:

  • Health coverage.  The Ryan budget has at least $2.7 trillion in cuts to Medicaid and subsidies to help low- and moderate-income people buy private insurance.  Under the Ryan plan, at least 40 million low- and moderate-income people — that’s 1 in 8 Americans — would become uninsured by 2024.
  • Food assistance.  The Ryan budget cuts SNAP (formerly food stamps) by $137 billion over the next decade.  It adopts the harsh SNAP cuts that the House passed last September — which would force 3.8 million people off the program in 2014, according to the Congressional Budget Office — and then converts SNAP to a block grant in 2019 and imposes still-deeper cuts.
  • Help affording college.  The Ryan budget cuts Pell Grants for low- and moderate-income students by up to $125 billion through such means as freezing the maximum grant (which already covers less than a third of college costs) for ten years, cutting eligibility in various ways, and repealing all mandatory funding for Pell Grants.
  • Other mandatory programs serving low-income Americans.  The Ryan budget cuts an additional $385 billion — beyond its SNAP cuts — from the budget category containing many mandatory programs for low- and moderate-income Americans, such as Supplemental Security Income for the elderly and disabled, the school lunch and child nutrition programs, and the Earned Income and Child Tax Credits for lower-income working families.  We estimate that about $150 billion of these cuts would fall on such low-income programs, as explained in the final paragraph of this blog.
  • Low-income discretionary programs.  The Ryan budget cuts these programs by about $160 billion, on top of the cuts already enacted through the 2011 Budget Control Act’s discretionary caps and sequestration.

Our estimates are likely conservative.  In cases where the Ryan budget cuts funding in a budget category but doesn’t distribute that cut among specific programs — such as its cuts in non-defense discretionary programs and its unspecified cuts in mandatory programs — we assume that all programs in that category, including programs not designed to assist low-income households, will be cut by the same percentage.

Tying Jobless Benefits to Corporate Tax Cuts Would Be Inappropriate

April 10, 2014 at 3:58 pm

Key House Republicans reportedly want to tie resuming federal unemployment insurance to extending various corporate tax cuts — including permanent extension of “bonus depreciation.”  Policymakers should reject any such effort, given that permanently extending bonus depreciation:

  • Entails huge cost.  Permanently extending the tax break, which allows businesses to take bigger upfront deductions for certain new investments, would cost $263 billion over the next decade, according to the Congressional Budget Office (CBO).
  • Has little bang for the buck.  Enacted in 2008, bonus depreciation was among the weakest federal measures to promote jobs and growth in the Great Recession.  Mark Zandi of Moody’s Analytics rated it near the bottom of a wide range of stimulus options, estimating that it delivered only 29 cents of additional gross domestic product (GDP) for each dollar of budgetary cost.  (Zandi rated unemployment benefits near the top, estimating that it delivered $1.55 of additional GDP per dollar of cost; see chart.)

    CBO has reached similar conclusions.  Also, the Congressional Research Service in 2013 cited studies by the Federal Reserve and others as providing “additional support for the view that temporary accelerated depreciation is largely ineffective as a policy tool for economic stimulus.”

    Most recently, Goldman Sachs noted “multiple indications that firms do not respond strongly” to bonus depreciation and concluded that its expiration “should have little effect” on the economy.

    It’s also worth noting that bonus depreciation only stimulates economic growth and job creation at all in a weak economy if businesses expect it to be temporary and thus accelerate their investments before it expires.  Permanently extending the tax break would eliminate even this weak effect.

  • Is at odds with recent tax reform efforts.  The recent plan from House Ways and Means Chairman Dave Camp (R-MI), like most other tax reform plans, moves in exactly the opposite direction, scaling back or eliminating various depreciation tax breaks.

Instead of using the plight of Americans who’ve been looking for work for at least six months as a bargaining tool to enact ill-advised corporate tax cuts, the House should quickly pass the Senate-approved bill to renew emergency unemployment insurance.

Just the Basics: Tax Expenditures

April 10, 2014 at 3:00 pm

Tax expenditures — subsidies delivered through the tax code as deductions, exclusions, and other tax preferences — have been in the news as many policymakers have proposed cutting them to reduce the deficit, finance investments, reduce tax rates, or a combination of those goals.  As Tax Day approaches, we’ve updated several backgrounders that explain how the federal government and states collect and spend tax dollars.  Today, we review our revised tax expenditures backgrounder.

Tax expenditures reduce the amount of tax that households or corporations owe.  To benefit from a tax expenditure, a taxpayer must undertake certain actions or meet certain criteria.  For example, some households with a mortgage can reduce their taxes by claiming a tax deduction for their mortgage interest, and corporations can receive a tax subsidy for investing in machinery.

In fiscal year 2013, tax expenditures reduced federal income tax revenue by over $1.1 trillion, and they reduced payroll taxes and other revenues by an additional $120 billion.  For comparison, just the federal income tax expenditures together cost more than Social Security, or the combined cost of Medicare and Medicaid, or defense or non-defense discretionary spending (see chart).

Click here to read the full paper.  For more on how deductions and credits work, see our related Policy Basics:  Tax Exemptions, Deductions, and Credits.