In Case You Missed It…

February 17, 2012 at 4:44 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, unemployment insurance (UI), state budgets and taxes, and health policy.

  • On the federal budget and taxes, we released Robert Greenstein’s statement on the President’s 2013 budget and highlighted our report explaining why one provision in it could lead to bigger cuts in domestic programs and smaller ones in defense programs than those already scheduled.

    Greenstein also showed that Senator Pat Toomey’s tax plan would raise taxes on people making under $200,000, despite his claim to the contrary.

    We updated our analysis of Governor Mitt Romney’s budget proposals, showing that they would require massive cuts in nondefense programs.

    Richard Kogan explained why discussions of deficit reduction need to take into account the steps that policymakers have already taken in this area.

  • On the economy, Chad Stone noted that, while harsh fiscal austerity in the United Kingdom stunted growth, stimulus measures in the United States helped stabilize the economy.
  • On UI, Chad Stone warned that failure to extend the federal emergency UI program would hurt jobless workers and the economy.

    Hannah Shaw explained that negotiations over continuing the program were the wrong venue for major UI reforms and showed why the resulting agreement was a good deal for the unemployed.

  • On state budgets and taxes, Phil Oliff noted that some governors’ proposals to raise education funding would still leave funding levels well below pre-recession levels, while Michael Leachman pointed out that scheduled cuts in federal education funding will add to schools’ troubles.

    Leachman also listed six reasons why requiring a supermajority vote to raise taxes is a bad idea, and Oliff praised a Maryland proposal to expand the Earned Income Tax Credit to help offset the impact of regressive tax increases.

    Erica Williams cited a new Kansas proposal as evidence that cutting taxes at all costs threatens to weaken a state’s economy.

    Michael Mazerov pointed out the benefits of broadening state sales taxes to cover more services.

  • On health policy, Paul Van de Water discounted arguments for repealing the Affordable Care Act’s excise tax on medical devices like surgical gloves and wheelchairs.

In other news this week, we released a statement on the impact of the President’s 2013 budget on the deficit and a report on the President’s proposal to eliminate separate funding caps for defense and nondefense programs.  We also released reports on state supermajority requirements for tax increases, why Congress should not repeal the excise tax on medical devices, estimating the revenue impact of taxing services, and the agreement to extend federal emergency UI.

A Look at the New Unemployment Insurance Deal

February 17, 2012 at 4:19 pm

Congress voted today to continue federal emergency unemployment insurance (UI).  The legislation gives unemployed workers a far better deal than UI legislation that the House passed last December.  It also rejects extreme proposals in the House bill (see here and here) that would have changed the essential character of the UI system, which policymakers created in 1935 to provide financial assistance to workers who have lost their jobs through no fault of their own.

The agreement provides fewer weeks of UI benefits to the long-term unemployed than they received between late 2009 and the end of 2011, but more weeks than they would have received under either of the alternatives:  the maximum of 59 weeks available in the House proposal, or the maximum of 26 weeks or fewer in most states if federal benefits expired completely.

The first table below, from our new analysis, shows how the legislation will change the temporary federal emergency UI program (known as Emergency Unemployment Compensation or EUC), including the state unemployment rates needed to trigger different tiers of benefits.  The second table shows how many weeks will be available in states over the course of the year, depending upon the state’s unemployment rate and whether it qualifies for benefits under the permanent, federal-state Extended Benefits (EB) program.

Changes to the Emergency Unemployment Compensation Program During 2012

Total UI Weeks Available Under Conference Agreement

Protecting Low-Income Families from Regressive Tax Increases

February 17, 2012 at 4:07 pm

A smart proposal in Maryland would expand the state’s Earned Income Tax Credit (EITC) to help offset the impact on low-income families of several proposed tax increases.

The proposed increases, in the state’s gas tax, water and sewer fees, and electricity rates, would help maintain roads, bridges, and public transportation and protect the environment.  But they would disproportionately affect low-income families (for reasons I explain in my testimony) at a time when the weak economy has left them especially vulnerable to a loss of income.

Fortunately, Maryland can offset the impact of these taxes on low-income working families with a modest expansion of the state’s EITC.  In so doing, Maryland can pay for critical services like transportation without taxing these families into, or deeper into, poverty.

This idea isn’t new.  In the past few years, Connecticut created an EITC and Indiana and Kansas expanded theirs at least in part to offset the impact of regressive tax increases.  Other states considering such tax increases should take a similar approach.

Obama Proposal Could Lead to Bigger Domestic Cuts, Smaller Defense Cuts

February 17, 2012 at 3:43 pm

A provision of the President’s budget would likely lead to even bigger cuts in domestic discretionary programs than the Budget Control Act’s (BCA) spending caps call for, with the savings going to lessen the required cuts in defense spending.

Our new analysis explains why, but here’s the story in brief:

Under current law, separate caps limit total defense discretionary funding and total nondefense discretionary funding for each year from 2013 through 2021.  The President’s budget would replace those caps with a single overall cap on discretionary appropriations starting in 2014, throwing defense and nondefense funding into the same pot.  (Essentially, the President is proposing to return to the BCA’s original cap structure, before the failure of the Supercommittee triggered a reconfiguration of the caps.)

The proposal wouldn’t change the overall amount of discretionary funding that Congress could approve in any year.  But in the current political environment, where advocates of the Pentagon are emphatic, defense contractors employ well-connected lobbyists and make substantial campaign contributions (and, in many cases, are strategically located in key congressional districts), and budgetary savings in defense often are attacked as jeopardizing national security, it would likely lead Congress to cut domestic and international discretionary programs further in order to help protect the military budget.

For 2013, the year before the proposal would take effect, the President’s budget breaches the existing defense cap by about $5 billion, while providing nearly $5 billion less for nondefense programs than the current cap allows.  (This funding shift is possible because the budget would change the caps to cover “security” and “nonsecurity” funding, which include somewhat different programs than the “defense” and “nondefense” categories.)  This modest reallocation may be just a foretaste of much larger reallocations to come in future years, especially on Capitol Hill, if policymakers remove the firewall between defense and nondefense funding.

The Downside of Cutting Taxes at All Costs

February 16, 2012 at 4:19 pm

A new tax plan from leaders in the Kansas House of Representatives is a prime example of how a misguided focus on cutting taxes at all costs can lead to bad fiscal policy that threatens to weaken a state’s economy.

The proposal would:

  • Cut income taxes virtually every year, and eventually repeal the individual and corporate income tax. The bill would require the state to cut income tax rates every year in which nominal revenue growth exceeded 2 percent, which is less than the current rate of inflation, until the individual and corporate income tax disappeared completely.  Income taxes make up over half of Kansas’ general fund, which supports such investments as education, public safety, and health care — key ingredients for economic growth and high-quality jobs over the long term.  Already, transportation officials warn that they will have to delay or cancel highway projects to help pay for the proposed tax cuts.
  • Raise taxes on nearly 200,000 low-income working families with children by cutting the Earned Income Tax Credit in half. Halving the state EITC would leave low-income families with less money to spend in the local economy and dramatically weaken the credit’s antipoverty impact.
  • Grant a huge, unprecedented tax break to corporations and their owners. The bill would abolish the income tax on business income that is “passed through” to owners, rather than taxed at the corporate level. Though proponents present the change as a job creator, much of the benefit would flow to large corporations and to investment funds and other entities that have few or no employees and are unlikely to create jobs, as our analysis explains.
  • Threaten the state’s bond rating and make infrastructure improvements more costly. The bond rating agency Moody’s recently declined to upgrade Oklahoma’s rating in part because of the mere possibility that the state might eliminate its income tax, which Moody’s warned would harm its ability to pay its debts in the future.  Lower bond ratings require a state to pay bondholders more to finance infrastructure investments.  That means either state spending on payments to the (mostly out-of-state) bondholders has to go up, or capital projects have to be scaled back.