Off the Charts Blog | Center on Budget and Policy Priorities

The Senate will vote tomorrow on an amendment to small business legislation that would seriously weaken an essential element of the new health reform law — the requirement that individuals obtain health insurance or pay a penalty  — and eliminate preventive care funding aimed at reducing the onset of chronic diseases and improving overall health.

Sponsored by Senator Mike Johanns (R-NE), the amendment would repeal a provision of the health reform law designed to improve businesses’ compliance with the tax laws.  Repeal would cost $17.1 billion over the next ten years, the amount of additional revenue that would have been collected due to improved tax compliance.

To make up for this loss, the amendment would do two things.  First, it would eliminate all $11 billion in Affordable Care Act funding for the Prevention and Public Health Fund for fiscal years 2010-2017 — taking away critical investments that could help reduce the incidence of chronic illness and infectious disease, improve overall health, and reduce the cost of treating preventable medical problems.

Second, it would weaken health reform’s individual mandate, which is designed to lower the overall cost of coverage by encouraging healthy people (who cost less to insure) to enroll in coverage rather than wait until they get sick.  While the Affordable Health Act would allow some people to remain uninsured without incurring a penalty, the Johanns amendment would allow many more to do so, meaning that fewer people would receive federal subsidies to help them buy coverage.

This would reduce federal costs for these subsidies, but at the price of increasing the number of uninsured people by 2 million (relative to what would occur under the health reform law), driving up premiums by as much as 4 percent for people with coverage through the new health insurance exchanges (because the pool of people in the exchanges would be less healthy, on average), and raising the cost to health care providers and state and local governments of providing health care to the uninsured.

While critics have argued that the tax-compliance provision would create excessive paperwork for businesses, senators who want to modify it can do so without undermining health reform.  An alternative amendment from Senator Bill Nelson (D-FL), which the Senate will also consider on September 14, would scale back rather than eliminate the provision to ease the burden for small businesses and make up for the lost revenue by reducing tax subsidies for the largest oil companies.  That’s a much more sensible approach.

Analysts Mark Zandi, Peter Orszag, and Howard Gleckman have all said sensible things about what would be the best policy for dealing with the expiring Bush tax cuts (which include a panoply of “middle class” tax cuts as well as cuts in marginal tax rates for the richest 2 percent of taxpayers).  Unfortunately, their smart policy analysis has been lost in the headlines generated by their actual proposals, which are colored by their political judgment about what might be achievable in today’s fractious (and fractured) Congress.

Here’s some of the good stuff:

• Orszag: “Ideally only the middle-class tax cuts would be continued for now.”

• Zandi: “Some people [argue] that higher taxes on the wealthy could pay for additional economic stimulus — like a bigger job tax credit or resurrected 1930s-style work programs.  This view has theoretical merit — some of my own analysis has been used to support it.”

• Gleckman: “I wish Obama and Congress could agree on a brief extension of only those tax cuts that are most likely to boost the short-term economy.”

You would get a smart policy for addressing the current short-term jobs deficit and also make a down payment on the long-term budget deficit if you did the following:  Extend the middle-class tax cuts for a few years, let the top-rate cuts expire on schedule at the end of December, and use the revenue gains in the first year or so to pay for effective job-creating stimulus.  The middle-class tax cuts and the stimulus measures both would end once the economic recovery becomes more sure-footed.  The deficit reduction from ending the tax cuts would be permanent.

Apparently, Zandi, Orszag, and Gleckman don’t think such a policy could get enacted and have suggested compromises that include extending the high-income rate cuts.  We at CBPP have a different take.  We think that if Congress acts now to extend all of the tax cuts for two years, the political reality is that Congress very likely will continue extending all of them beyond that point — especially since the next Congress will likely contain many more tax-cut proponents than the current one and a crucial election will be coming up in 2012.

Admittedly, there’s a similar risk in extending the middle-class tax cuts:  policymakers may very well end up continuing them indefinitely.  This fact, however, underscores the importance of allowing the high-income tax cuts to expire at the end of this year and at least securing those budget savings.  That would be the right policy and would give us a fighting chance of keeping these tax cuts from coming back.  Unfortunately, we may be stuck with the high-income tax cuts for many years if we extend them and the middle-class tax cuts together for two years or a similar period of time.

This week on Off the Charts, we featured a quiz challenge, the looming debate on taxes and spending cuts, and housing affordability problems.

• Each day during our quiz challenge, we focused on one key issue facing Congress when lawmakers return next week.  Here they are: Day 1: The 2001 and 2003 Tax Cuts (answers here), Day 2: The Estate Tax (answers here), Day 3: Unemployment (answers here), and Day 4: Did Stimulus Work? (answers here). Do each quiz and tell us how many questions you answered correctly to receive a free Center on Budget and Policy Priorities T-shirt.
• On the tax vs. spending debate, Robert Greenstein responded to House Minority Leader John Boehner’s proposal to cut funding for discretionary (i.e., annually appropriated) programs other than defense, homeland security, and veterans and to extend all of President Bush’s tax cuts for two years, including those for the wealthiest Americans.  Chuck Marr answered questions about the future of the estate tax, outlining policy implications and potential paths for political action. Chuck also blogged about the high-income Bush tax cuts and why they should expire on schedule.
• On housing, Doug Rice explained how renting has in recent years become even more difficult for those living below the poverty line.

In other news, the Center released reports on “fairtax” proposals to replace state income and business taxes with expanded sales tax, the Boehner proposal to cut non-security discretionary programs 22 percent, and a podcast on the estate tax.  You can find it on iTunes here.

Below are the answers to today’s quiz on the impact of government programs in boosting the economy and reducing hardship during the recession. Send an email to communications@cbpp.org today with your final score for the challenge and we’ll send you one of our newly-designed Center on Budget T-shirts.

1. The Congressional Budget Office estimates that the nation’s Gross Domestic Product in the second quarter of 2010 was ____ it would have been without the Recovery Act.
   ANSWER: b. between 1.7 and 4.5 percent larger than
2. CBO also estimates that without the Recovery Act, the unemployment rate in 2010 would have been ____ than it actually will be.
   ANSWER: a. 0.7 to 1.8 percentage points higher
3. Up to ____ jobs would have been lost next year if Congress had not extended fiscal aid to states in August.
   ANSWER: c. 900,000
4. The TANF Emergency Fund has helped create ____ subsidized private- and public-sector jobs.
   ANSWER:
   250,000
5. The number of Americans receiving food stamps has grown by roughly ____ since the start of the recession.
   ANSWER: d. 13 million

We issued an analysis this morning of House Minority Leader John Boehner’s proposal to cut funding for discretionary (i.e., annually appropriated) programs other than defense, homeland security, and veterans and to extend all of President Bush’s tax cuts for two years, including those for the wealthiest Americans.  Here are the highlights:

• The plan would require the largest domestic funding cuts in recent U.S. history. Rep. Boehner’s proposed funding level for these programs is 22 percent below the fiscal year 2010 level adjusted for inflation (the latter of which is roughly the level President Obama has proposed).  Coming amidst the deepest economic downturn since the Depression, these cuts would remove substantial purchasing power from the U.S. economy and thereby cost hundreds of thousands of jobs while heightening the risk of a double-dip recession.These cuts would also have sharp effects on basic services.  For example, a 22 percent cut in K-12 education funding would take nearly $9 billion out of this area in fiscal year 2011, on top of the deep education cuts that many state and local governments across the country are being forced to make because of their own budget problems.

• Rep. Boehner’s claims that his proposal would freeze non-security discretionary funding at the 2008 level and that such funding has increased 85 percent since then are incorrect. His proposed funding level actually is $44 billion below the 2008 level ($22 billion below it if you don’t count emergency funding Congress approved in 2008).  And the funding increase between 2008 and 2010 — excluding emergency funding in both years — is not 85 percent but 15 percent, after adjusting for inflation, a reasonable amount given the severe weakness in the economy and the accompanying drop in consumer, business, and state and local government purchases.

• While Rep. Boehner has equated his proposed tax-cut extension with a recent proposal from former OMB director Peter Orszag, the two differ in a critical respect. Orszag called for extending the “middle-class” tax cuts (and, if politically necessary, the high-income tax cuts as well) for two years and then terminating all of them; he envisions a commitment by key policymakers that, in extending the tax cuts now, they will allow them to end after 2012.  In contrast, Rep. Boehner has made clear he still wants all of the tax cuts made permanent. Rep. Boehner’s proposal is a rather transparent effort to extend the tax cuts into the next Congress when those who seek to make them permanent will have more votes.  It would entail continuing tax cuts that average well over $100,000 a year — double the entire income of the typical American household — for people making over $1 million while cutting basic programs and services that most Americans of ordinary means rely on.