Will the Real Mitt Romney Please Stand Up?

February 1, 2012 at 6:31 pm

As you may have heard, Mitt Romney said this morning, “I’m not concerned about the very poor. We have a safety net there. If it needs a repair, I’ll fix it.” We’re glad the governor is expressing support for a safety net and for fixing it if it needs repair.  Yet his own budget proposals would tear gaping holes in the safety net and damage it severely.  Consider the following:

  • The Romney budget proposals would make massive cuts in safety-net programs.  For starters, he has embraced the budget that House Budget Committee chairman Paul Ryan proposed last year, which would make the deepest cuts in assistance for low-income Americans in modern U.S. history.  The Ryan budget would convert Medicaid to a block grant and cut its funding by 49 percent by 2030 below currently scheduled levels, a proposal that Governor Romney has specifically defended.  It would also convert SNAP (formerly known as the Food Stamp Program) to a block grant and cut its funding by $127 billion (or almost 20 percent) over the next decade.  These cuts, combined with deep cuts in Pell Grants, low-income housing assistance, and other programs for low-income people, would total a stunning $2.9 trillion over the next decade.  The Ryan budget would get nearly two-thirds of its savings over the next ten years by cutting programs targeted on people with low or modest incomes, even though those programs account for only about one-fifth of the budget, making it the most regressive budget plan that a chamber of Congress has ever passed.

    And the Romney proposals go farther than Rep. Ryan’s — they would lead to even deeper cuts in basic safety-net programs for the poor than the Ryan budget would.  That’s because Governor Romney has proposed to:  1) shrink federal spending to 20 percent of GDP for 2016 and all subsequent years, which is a bit below what federal spending would fall to over the next two decades under Chairman Ryan’s budget; 2) increase defense spending to 4 percent of GDP, a higher level of spending than it would reach under the Ryan budget; 3) permanently extend President Bush’s tax cuts; 4) enact new tax cuts on top of them, which the Urban Institute-Brookings Institution Tax Policy Center estimates would lose an additional $180 billion a year by 2015; and 5) require that the federal budget be balanced.

    Governor Romney hasn’t outlined cuts in specific programs.  But if policymakers exempted Social Security, as he has suggested, they would have to cut all other nondefense programs — including safety-net programs for the poor — by an average of 24 percent in 2016 and 35 percent in 2021 just to reach Governor Romney’s first four goals.  Furthermore, to balance the budget at the same time — which Governor Romney has said should be a constitutional requirement — policymakers would have to finance his tax cuts with even deeper budget cuts.  To meet all of Governor Romney’s budget goals — including balancing the budget — would require cutting all nondefense programs other than Social Security by an average of 54 percent by 2021.  And since policymakers surely wouldn’t cut Medicare in half by 2021, safety-net programs for the poor likely would be cut even more severely.  The ensuing increase in poverty and destitution would almost certainly surpass anything in our country’s recent history.

  • Even a cut of 24 percent — the smallest of the figures I’ve just mentioned — would have a devastating impact on safety-net programs. For example, the cuts in SNAP would throw almost 11 million low-income people off the program, cut benefits deeply — by over $1,500 a year for a family of four — or some combination of the two.  Cuts of 24 percent in compensation payments for disabled veterans, which average less than $13,000 a year, would shrink those payments — as well as pensions for low-income veterans, which average about $11,000 a year — by nearly a fourth.  Supplemental Security Income (SSI) benefits for the poorest elderly and disabled individuals in the country, which today lift impoverished elderly and disabled people living alone to only three-quarters of the poverty line, would be slashed — with these people pushed below 60 percent of the poverty line.
  • And while cutting low-income programs, Governor Romney would actually raise taxes on low-income families. According to the Tax Policy Center, the Romney tax plan would provide big tax cuts at the top of the income scale that average $140,000 a year (on top of the Bush tax cuts) for people who make over $1 million a year.  Yet it would increase average tax burdens for low- and moderate-income families.  The plan would do so by letting certain tax measures that benefit low-income families expire at the end of 2012 — including measures that reduce marriage tax penalties on working-poor families and help low-income students afford college — even as it made permanent all of the expiring tax cuts for wealthy individuals and abolished the estate tax.

Bernstein on Strengthening the Middle Class

February 1, 2012 at 5:24 pm

Testifying before a House Education and Workforce Committee hearing today on “Expanding Opportunities for Job Creation,” CBPP Senior Fellow Jared Bernstein outlined policies to strengthen the middle class.  Here’s an excerpt:

While the economy is improving and unemployment is slowly coming down, at current growth rates, it will take many years to reach full employment.  The following measures can help build on the momentum we have and accelerate the recovery:

  • Extend the payroll tax holiday and unemployment insurance. Policy makers of both parties have widely agreed on the need to extend payroll relief through the end of the year; failure to do so would add to the underlying fragility of the nascent expansion.
  • Invest in infrastructure investment. As part of the American Jobs Act, the President proposed a national program to repair and modernize the nation’s public schools and community colleges.  This plan is now a legislative initiative called FAST — Fix America’s Schools Today — soon to be introduced in both chambers.  FAST addresses three big problems: 1) the backlog of maintenance repairs in strapped school districts across the nation, 2) the high unemployment among construction workers and other laborers who do this type of work, and 3) the energy inefficiency in many public schools where billions of taxpayer dollars are wasted through bad roofing, aging boilers, and poorly insulated windows.  I urge legislators to give this idea a close look.
  • Manufacturing policy. In his State of the Union address, the President presented some ideas, including tax incentives and trade enforcement measures, to help incentivize the insourcing of manufacturing work in America.  In fact, manufacturers have added over 300,000 jobs over the past 21 months, and anecdotally, some producers say that perhaps they have overplayed the outsourcing idea and are interested in producing closer to where they sell (rising transportation costs and narrower international wage differentials may also be in play here).

    In this regard, policy makers could help tap this development by closing international tax loopholes that incentivize multinationals to build factories abroad.  The President’s most recent budget, recommended to the so-called super committee in September, proposes $110 billion in loophole closures that would both level the playing field for domestic manufacturers and help relieve our fiscal situation.

    Trade enforcement, including actions against countries that manage their currencies to artificially support their exports and block our imports, is another essential piece of this puzzle.

    Note that these measures simply level the playing field and are in no sense protectionist — they do not provide unfair advantages to American firms nor do they block imports.

  • Skills enhancement. This committee has a long history of interest in policies to ensure that the skills of American workers match those demanded by today’s employers.  Ranking Member Miller’s Pathways Back to Work bill supports a subsidized employment program targeted at unemployed adults, modeled on a successful Recovery Act program that employed over 250,000 workers in 2009-10 (TANF Emergency Fund).  This bill also provides work-based job-training for the long-term unemployed and summer jobs for younger workers.

    President Obama also stressed the importance of workforce investment through what is typically called “sectoral employment strategies.”  As opposed to generalized training that too often leaves participants unprepared for actual jobs, sectoral strategies link trainers, often through partnerships with community colleges, with local employers who provide granular information about future demand needs.  Research by Georgetown University professor Harry Holzer shows these programs to be far more effective than traditional training programs that are too often detached from what’s happening in local labor markets.

  • Improving workers’ bargaining power. As with international trade and taxation, the union organizing playing field is badly tilted against those who would like to exercise their right to collectively bargain.  A recent rule change by the National Labor Relations Board will help workers who’ve petitioned to form a union to have a more timely election.  In a climate where some employers who oppose unions can and do block elections with impunity, this new rule removes some of the above-noted tilt.

Click here for the full testimony.

Video: Jared Bernstein Answers Questions from His Readers

January 31, 2012 at 4:20 pm

Jared responds to questions from readers including:

  • “To what extent is inflation being driven by US policy as opposed to things beyond our control?”
  • “How will we know when we have a full self-sustaining recovery?”
  • “How and if do private equity firms contribute to the economy in terms of creating jobs and fostering economic growth?”

Rankings Say Little About States’ Real Business Climate

January 31, 2012 at 3:48 pm

If someone told you a city’s average temperature but not how much it rains there, how would you know whether you liked its climate?  The Tax Foundation’s annual ranking of states’ “business tax climate” is similarly lacking.

In the Tax Foundation’s scale, how a state compares to other states starts and ends with its taxes — generally, the lower the better.  But tax levels don’t tell you if the schools are good, the transportation system is state of the art, or communities are safe.  All of those, not just taxes, determine a state’s economic fortunes — as this study from the Federal Reserve Bank of Cleveland on the importance of education shows.

And since schools, roads, and other necessities cost money, the ranking actually rewards states that don’t invest in what makes them attractive places to live and work.  The Tax Foundation this year gave its top ranking to Wyoming, a state with not a single Fortune 500 company.  If the rankings were meaningful, the streets of Cheyenne should be crawling with CEOs.

Peter Fisher of the Iowa Policy Project, whose book “Grading Places” shows why rankings like these are suspect, points out that the Tax Foundation study doesn’t even accurately report the actual amount of taxes that businesses pay in a state:

Rather than measuring what businesses actually pay, [it] instead focuses on selected characteristics of the tax code while ignoring significant features.  Results differ wildly from a ranking based on what businesses pay in many cases.

As a result, “In some cases, lower taxes actually produce a worse score” in the Tax Foundation rankings.

Fisher concludes, “What this annual release offers is, at its core, an indefensible mish-mash of ‘Stuff the Tax Foundation Doesn’t Like,’ which should be the title.”  He’s right.

Video: Jared Bernstein and Chye-Ching Huang Discuss Capital Gains Taxes

January 31, 2012 at 11:22 am

“There are lots of good reasons to get rid of” the preferential tax treatment of capital gains,
Chye-Ching Huang tells Jared Bernstein in this video.

She notes, for instance, that “at the same time that capital gains income has been growing really rapidly, and growing at the very top of the income distribution, we have been cutting the rates. That is one of the major reasons why the tax system hasn’t been doing as much to push against income inequality as it used to.”

Chye-Ching and Jared discuss what capital gains are and the tax advantages they receive compared to ordinary income.