House-Senate Conference the Wrong Venue for Major Unemployment Insurance Reform

February 14, 2012 at 12:14 pm

Both parties have agreed for years that the unemployment insurance (UI) system needs reform.  The bipartisan, blue-ribbon Norwood Commission in the mid-1990s called for changes to strengthen the permanent Extended Benefits program, improve the UI system’s solvency, and increase access for low-wage and other disadvantaged workers. Policymakers took a step toward implementing this third goal by including some UI modernization reforms in the 2009 Recovery Act.

But the ongoing House-Senate talks over continuing the temporary federal emergency UI program are the wrong place to negotiate comprehensive changes to a permanent program that has supported jobless workers and the economy for over 75 years.

Congress should enact a quick, clean extension of temporary federal UI benefits, then pursue UI reform through the normal legislative process, giving it the full debate and discussion it deserves.

The President’s budget (see our statement) takes an important step towards UI reform by proposing changes to bolster the system’s long-term fiscal soundness and modernize its financing.  The budget also boosts funding for states to strengthen their reemployment and training services to help the unemployed get back on their feet.

Unfortunately, in their recent proposals to extend federal emergency UI, congressional Republicans have sought only those “reforms” that would deny benefits to unemployed workers and allow states to divert UI funds for purposes other than paying benefits.

UI has played an important role in creating jobs and reducing poverty in the last few years. Congress should consider a range of UI proposals — those from the Norwood Commission, the President, and House Republicans — but should keep in mind that reform should strengthen the UI system, not weaken it.

Governors’ Rhetoric, Budgets Don’t Match on Education Funding

February 13, 2012 at 5:15 pm

Governors in some states that have made deep cuts to K-12 education funding since the recession started are proposing to restore some of that funding next year.  The proposals are a welcome departure from the relentless cuts of recent years.  But, in a number of states, they would leave funding well below pre-recession levels.  For example:

  • Florida Governor Rick Scott, calling for a $1 billion increase, said, “Floridians truly believe that support for education is the most significant thing we can do to ensure both short-term job growth and long-term economic prosperity for our state.”  But Scott’s proposal would only translate into an additional $50 per pupil, after adjusting for inflation.  That’s far from enough to offset Florida’s $1,417 per-pupil cut of the last four years and would leave per-pupil funding 18 percent below pre-recession levels.  (All figures in this post refer to states’ general-purpose “formula funding” for education; see here for details.)
  • Utah Governor Gary Herbert, calling for $41 million in additional K-12 education funding to support enrollment growth, said, “I think it is absolutely imperative for our long-term economic stability that we fund education.”  But, on a per-pupil basis, Herbert’s proposal would actually cut funding by about $68 (1 percent), after adjusting for inflation.  Coming on top of a $636 reduction in per-pupil spending over the last four years, it would leave per-pupil funding 12 percent below pre-recession levels.
  • Virginia Governor Bob McDonnell, highlighting a $438 million increase in K-12 spending in his two-year budget, said, “When deciding where to move or expand, businesses look for a well-educated and well trained workforce.  We owe every student the opportunity to be career-ready or college-ready when they graduate from high school.”  But McDonnell’s proposal only translates into a $58 (1 percent) increase in real per-pupil funding.  That’s a fraction of the $802 cut the state has made since fiscal year 2008 and would leave per-pupil funding 12 percent below pre-recession levels.

All of these governors could have done more to restore education funding, since none proposes to raise significant additional revenue.

States are in the midst of a long and uncertain recovery from the revenue collapse that followed the Great Recession, and it will take years before revenues reach levels adequate to sustain services at anywhere near pre-recession levels.  If states really want to make up for the severe cuts of recent years without cutting into other critical services, they must consider raising additional revenues.

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.