Like the Ryan Budget? Then You’ll Love These House Spending-Cap Bills

February 6, 2012 at 1:20 pm

The House may soon consider two bills (H.R. 3576 and H.R. 3580) that would limit federal spending to levels similar to those in the budget of Budget Committee Chairman Paul Ryan (R-WI) that the House passed last April.  These bills are part of a package of ten bills that Chairman Ryan and other committee members introduced to change the federal budget process.  As our new paper explains, these two bills would disproportionately hurt low-income people, worsen recessions, rule out balanced deficit-reduction packages, and promote deep cuts in Social Security and Medicare.

Nearly Two-Thirds of Proposed Cuts in Ryan Budget Comes from Low-Income AmericansThe bills — like the Ryan budget on which they are modeled — would require large cuts in federal spending that would likely fall disproportionately on low-income people.  The Ryan budget plan would get nearly two-thirds of its budget cuts over the next ten years from programs that serve people of limited means.  (See chart)

The Ryan plan would also cut Medicare in two major ways.  It would gradually raise the eligibility age from 65 to 67 while repealing the health reform law’s coverage expansions, so 65- and 66-year-olds would have neither Medicare nor access to health insurance exchanges where they could buy affordable coverage.  And it would replace Medicare’s guaranteed benefit with a premium support payment (voucher) that beneficiaries would use to buy coverage on their own, and the voucher wouldn’t keep pace with rising health care costs.

The bills would exacerbate economic downturns by preventing the federal government’s “automatic stabilizers” — like unemployment insurance and SNAP (food stamps) — from expanding as they are designed to do to help rejuvenate a weak economy.  Also, by limiting spending but not tax cuts, the bills would effectively require that all deficit reduction come from program cuts and none from revenues, thereby precluding balanced deficit-reduction packages.  And they would alter congressional budget procedures to make it easier to cut Social Security and Medicare benefits, but not to strengthen these programs’ financing by raising dedicated tax revenues.

In addition, the bills would reverse a quarter-century of bipartisan practice by subjecting basic assistance programs for the poor to automatic, across-the-board cuts.  In the past, both parties have embraced the principle that automatic budget cuts to enforce budget or deficit targets should spare basic assistance programs for low-income Americans to avoid driving these Americans into (or deeper into) poverty.  The House bills would repeal those protections, putting low-income programs at particular risk of deep cuts during and after recessions, when the need for them is greatest.

In Case You Missed It…

February 3, 2012 at 4:54 pm

This week on Off the Charts, we focused on the economy, the federal budget and taxes, state budgets, and health policy.

  • On the economy, Chad Stone pointed out that while the January jobs report is encouraging, a large jobs deficit remains, and he discussed the jobs report with Jared Bernstein.

    Chad also showed that the economy faces a long road back to full health. We excerpted Jared’s congressional testimony on strengthening the middle class and featured a video of Jared answering questions from readers of his blog, On the Economy.

  • On the federal budget and taxes, Robert Greenstein explained that Mitt Romney’s budget proposals would lead to massive cuts in safety-net programs.

    Jared Bernstein and Chye-Ching Huang discussed why policymakers should eliminate the preferential tax treatment of capital gains.

  • On state budgets, Nick Johnson pointed out that local governments are slowing the recovery through job cuts, and Michael Leachman noted that 20 states must begin repaying federal loans they took out to help pay for unemployment benefits.

    Jon Shure explained why the Tax Foundation’s annual ranking of states’ business climate is misleading, and Michael Mazerov lauded states’ efforts to force online retailers and other remote sellers to collect sales taxes.

  • On health policy, Matt Broaddus showed that the tax breaks that Georgia enacted to expand health coverage through the use of Health Savings Accounts have failed to do so.

In other news, we released Chad Stone’s statement on the January employment report, Jared Bernstein’s testimony on strengthening the middle class, and a report on the failure of Georgia’s effort to expand health coverage through tax breaks.

Video: Jared Bernstein Discusses the January Employment Report with Chad Stone

February 3, 2012 at 4:37 pm

Jared Bernstein, Senior Fellow, and Chad Stone, Chief Economist, discuss what the encouraging January employment report indicates about job creation and economic growth.

Chad Stone: “We’re smiling and the markets are smiling and this is actually a good jobs report. It’s one of the few good jobs reports we’ve had in this recovery. We had 240,000 jobs on private and government payrolls combined. 257,000 jobs in the private sector. 23 straight months of private sector job creation. Another two years of that, we’ll have erased the hole that got created by the Great Recession.”

Local Governments Still a Drag on the Economy

February 3, 2012 at 3:32 pm

Today’s encouraging jobs report would have been even more encouraging if local governments weren’t still slowing the economic recovery.

Local governments — mostly school districts — cut another 11,000 jobs last month.  Total job losses at the state and local government levels have reached 668,000 since employment in this category peaked in August of 2008.

Public Workforce Has Declined Sharply Since 2008

To put these figures in historical context, it’s useful to separate education workers (teachers, librarians, administrators, and so on in public schools, colleges, and universities) from other state and local workers (police, firefighters, garbage collectors, bus drivers, and so on).  The education side of state and local employment has employed more people than the non-education side since the early 1990s, in part because of state education reforms that increased teacher hiring.

However, the public education workforce has shrunk over the last three years to its lowest level, relative to the U.S. population, since the late 1990s (see chart).  The non-education state and local public workforce has shrunk to its lowest level since the mid-1980s.

Unfortunately, the downward trend in overall state and local employment shows no signs of slowing, due to continuing and upcoming budget cuts at the local, state, and federal levels.  (About one-sixth of the federal budget goes to grants for state and local governments.)

A shrinking public-sector workforce as a share of the overall population can have a real impact on residents’ quality of life, since the services that states and localities provide — education, public safety, health care, and the like — tend to be pretty labor-intensive.  It also risks undermining future economic growth, since businesses need educated, healthy workforces and safe streets to prosper.

Despite Promises, Tax Breaks Not Expanding Health Coverage in Georgia

February 3, 2012 at 12:56 pm

Georgia in 2008 enacted tax breaks to expand health coverage by encouraging people to buy high-deductible insurance plans that they could pair with a Health Savings Account (HSA).  Newt Gingrich’s Center for Health Transformation designed and promoted the law, claiming that 500,000 Georgians would gain health coverage using the tax breaks.

Despite HSA Law, Georgia's Uninsured Rate Rose Faster Than in the Nation and Rest of the SouthBut, as our new analysis shows, these claims didn’t hold up.  Georgia’s uninsured rate has gone up since then, not down, and at a faster rate than in the region and the country as a whole (see chart).

Some policymakers have called for repealing the Affordable Care Act and have promoted HSAs as one of the alternative ways to expand coverage.  Our new report’s findings (which are consistent with our 2008 analysis of the Georgia law) cast serious doubt on that approach:

  • There are 319,000 more Georgians without health insurance now than before the law was enacted.
  • Georgia’s uninsured rate has increased more rapidly than the rest of the South and the nation as a whole.  This is also true among the law’s stated target population — people making more than $50,000 a year.

These findings reinforce earlier studies on the limitations of federal tax breaks related to HSAs.  These studies have shown that HSAs mostly benefit high-income people — the group that is least likely to be uninsured.  That’s not surprising since the higher a person’s federal income tax bracket, the greater the value of the benefit.

The Affordable Care Act will cover 34 million Americans who would otherwise be uninsured, according to the Congressional Budget Office.  Georgia’s experience provides some further evidence that promoting HSAs is not a viable alternative.