Greenstein on the Obama Budget

February 13, 2012 at 4:27 pm

We just released the statement by Robert Greenstein on the President’s budget.  Here’s the opening:

The President’s budget would, if enacted, make significant progress in reducing deficits, although policymakers would have to take further steps, especially for future decades. Under its economic assumptions, it would achieve what most budget analysts, and all recent bipartisan commissions or panels, have identified as the crucial fiscal goal for the decade ahead — stabilizing the debt so that it no longer rises faster than the economy. To meet that goal, deficits must shrink to a bit less than 3% of Gross Domestic Product (GDP), and the President’s budget would stabilize deficits at 2.8% of GDP from 2019 through 2022. The budget also would stop the debt from rising as a share of the economy in 2014 and reduce it slightly as a share of GDP over the following eight years.

Click here for the full statement.

Why Supermajority Requirements to Raise Taxes Are a Bad Idea

February 13, 2012 at 1:04 pm

Lawmakers in Minnesota and New Hampshire are considering amending their constitutions to require a supermajority (three-fifths) vote to approve tax increases, rather than the simple majority required for all other legislation.

While proponents claim that the change will lead to lower taxes, our new analysis finds that the few states with strict supermajority requirements levy taxes at virtually the same rate as other states, on average (see chart).  That’s because most states — with or without a supermajority requirement — generally avoid tax increases large enough to cause taxes to grow as a share of personal income.

Supermajority rules also can make it much harder for a state to manage its finances properly, for these six reasons:

  1. They protect special interest tax breaks. Supermajority requirements make it even harder for states to kill ineffective and unfair tax breaks than it already is, since repealing them often counts as a tax increase.  This means that costly deductions, credits, and other tax expenditures that often benefit only a handful of corporations or individuals have more protection than special interest spending, which lawmakers can cut by simple majority vote.
  2. They shift costs from some residents to others. If raising taxes and repealing tax breaks requires a supermajority vote, lawmakers looking to raise revenue will more likely raise fees, tuition, and other levies not subject to a supermajority requirement.  This shifts the cost of government from some taxpayers to others — like, for instance, students and Medicaid recipients.
  3. By raising interest rates, they may actually raise state spending and dissuade states from making capital investments. Research shows that investors are less willing to buy bonds from states with supermajority tax requirements because such rules reduce states’ flexibility to raise revenue, making them potentially less trustworthy borrowers. Supermajority states thus are more likely to have lower bond ratings, which forces them to make higher interest payments and pushes up the cost of bond-financed projects like roads and public buildings.
  4. They make it harder to finance transportation investments. States finance most highway and other transportation projects with gas taxes that are not indexed for inflation.  To keep up with rising highway-construction costs, states must periodically raise gas tax rates, but supermajority rules make that more difficult.  Five of the seven strict supermajority states have not raised gas taxes in over 15 years, while most other states have increased them at least once in the last decade.
  5. They limit lawmakers’ budget options during downturns and can make downturns deeper and longer. By making it harder to raise taxes, supermajority rules encourage states to rely on a cuts-only response to recession-induced budget gaps.  That’s a particularly poor choice for states in such circumstances:  severe spending cuts remove demand from the economy, further slowing an already weak economy.  Raising taxes, particularly from wealthy people and multi-state corporations, is a less damaging approach during recessions because it generally has a smaller impact on overall demand.  That’s why states’ best approach is often a balanced one that includes revenue increases as well as targeted spending cuts.
  6. They strengthen special interests and ideological extremists. In supermajority states, a minority of legislators and special interest lobbyists can hold the majority hostage until their demands are met.  For example, a bipartisan commission found that California’s (now-repealed) supermajority requirement to pass budgets forced the enactment of substantial “pork-barrel” legislation that individual legislators had promoted.

In Case You Missed It…

February 10, 2012 at 5:01 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, state budgets, safety-net and entitlement programs, and health care.

  • On the federal budget and taxes, James Horney showed that a Senate proposal to cancel the spending cuts scheduled for 2013 would expand the cuts in later years.Paul Van de Water explained that House proposals to cap federal spending would disproportionately hurt low-income people and have other harmful impacts.

    We also featured a video of Jared Bernstein and Richard Kogan discussing the national debt.

  • On the economy, Hannah Shaw explained that policymakers aren’t adequately supporting job training and education programs for unemployed workers, and we excerpted Jared Bernstein’s Senate Budget Committee testimony on the causes and policy implications of rising income inequality.
  • On state budgets, Nicholas Johnson outlined some dos and don’ts to improve state economies and highlighted a report debunking the claim that state income taxes impede growth.Phil Oliff warned that lagging state funding has driven up the cost of public colleges.
  • On safety-net and entitlement programs, Bob Greenstein discussed some holes in the safety net that need repair.  Chad Stone explained that the expansion of safety-net programs during the Great Recession shows that they worked as intended.Arloc Sherman corrected the misconception that entitlement programs are creating a dependent class of Americans who would rather collect government benefits than work by showing that the vast majority of benefits go to the elderly, disabled, or members of working families.
  • On health care, Sarah Lueck cautioned that an Administration proposal would give insurance companies too much leeway to set benefits under health reform.

In other news, we released an analysis of who receives benefits from federal entitlement programs, reports on proposed House spending-cap bills and ways that states can strengthen their fiscal policies, and Jared Bernstein’s testimony before the Senate Budget Committee on assessing inequality, mobility, and opportunity.

Want to Promote Job Training and Adult Education? Then Fund Them Adequately

February 10, 2012 at 4:32 pm

House Republicans say that the proposals they are pushing in negotiations over continuing emergency federal unemployment insurance (UI) will “promot[e] more job search and education and training needed to help the unemployed get back to work sooner.”  In reality, those changes would be fundamentally unfair to jobless workers and do little if anything to put them back to work.

Funding for Job Training and Adult Education Well Below 2008 LevelsThe House GOP proposal to continue emergency federal UI benefits would require UI recipients to have a high school diploma or GED or be enrolled in classes to get one.  Not only would such a policy deny benefits to workers who have worked for years or even decades — and effectively paid UI taxes during that period (economists agree that employers generally pass on the tax in the form of lower wages) — and then were laid off, but it would do little or nothing to improve their job opportunities.  Every state had waiting lists in local adult education programs in 2009-2010, according to the most recent survey — in part because of federal and state budget cuts (see below) — so jobless workers would be hard-pressed to comply with a requirement for a high school diploma or GED in a timely manner, leaving them without UI benefits indefinitely.

House Republicans would also allow states to use UI funds for purposes other than paying UI benefits.  This would undermine the fundamental purpose of the UI system since its creation in the 1930s: providing temporary financial support for individuals with work histories who have lost a job through no fault of their own.

While states could use the diverted UI funds to expand job training, they also could use them to replace state or local funding for job training and then shift the withdrawn funds to other uses, including tax cuts.  The net result could be a reduction in UI benefits with little or no offsetting increase in employment services.

If policymakers really want to improve outcomes for less-educated, lower-skilled workers, they need to invest more in job training and adult education programs to make them more available and effective.  Unfortunately, they’ve done the opposite.  House Republicans have backed the large cuts that Congress has made in federal funding for job training and adult education in recent years and have pushed for even bigger cuts.

As the chart shows, federal funding for both job training and adult education is well below levels set before the recession began — and the cuts in job training would have been much deeper under the House-passed version of the 2012 budget.

Further cuts are likely as Congress seeks to comply with the Budget Control Act’s annual caps on discretionary spending.  Moreover, state budget cuts have exacerbated this problem.

Helping unemployed workers improve their skills is important — especially while jobs remain extremely hard to find (there are four job-seekers for every available job).  But job training, adult education, and other such services should complement basic unemployment compensation, not replace it.

Video: Jared Bernstein and Richard Kogan Discuss the Budget, Debt, and the Economy

February 10, 2012 at 4:22 pm

CBPP Senior Fellows Jared Bernstein and Richard Kogan explain why the claim that the rise in the national debt in recent years places an unfair burden on future generations is “wrong in a lot of different ways.”