In Case You Missed It…

December 9, 2011 at 5:52 pm

This week on Off the Charts, we discussed the proposed Balanced Budget Amendment (BBA), the federal budget and taxes, the economy, state budgets, and housing.

  • On the Senate Balanced Budget Amendment, Richard Kogan outlined the problematic program cuts that would result from the federal spending cap mandated by the BBA. Kogan also cautioned that in case of war, the Senate BBA would prevent the government from covering war costs through tax increases without a two-thirds vote in both the House and Senate.  Chye-Ching Huang demonstrated that, contrary to some BBA proponents’ claims, balanced budget requirements in European countries are nowhere near as extreme as those in the proposal before the Senate.
  • On the federal budget and taxes, we featured part of our report explaining how the across-the-board cuts in the Budget Control Act will work.  Jim Horney pointed out that the savings under a Senate Republican proposal to freeze federal employee pay would actually come from further large cuts in discretionary programs. Chuck Marr also explained why House Majority Leader Eric Cantor’s push to attach a corporate tax holiday to the bill to extend the payroll tax cut is a bad idea.
  • On the economy, Chad Stone warned that House Republicans’ proposal to slash unemployment insurance (UI) funding would hurt unemployed workers and hinder economic recovery.
  • On state budgets, Nicholas Johnson discussed why more state policymakers are considering tax increases on their wealthiest residents.
  • On housing, Barbara Sard pointed to our report demonstrating that the large majority of housing voucher recipients that are able to work do so, in response to some policymakers’ recent calls to increase self-sufficiency among recipients of housing assistance.

In other news, we released reports on the Senate BBA’s extreme budget cuts and on its severity by international standards, and on the demographic makeup and labor force attachment of housing voucher recipients.

House Republican Unemployment Insurance Proposal Acts As If Economic Slump Is Over

December 9, 2011 at 5:04 pm

House Republicans must think the job market is improving rapidly and that the Congressional Budget Office is way off base in projecting that the unemployment rate will average 8.7 percent in 2011 and 2012.  How else can one explain their proposal to slash federal emergency unemployment insurance (UI) benefits?

The House Republican proposal — part of their larger proposal to extend the payroll tax cut and UI benefits — would slash, by 40, the number of weeks potentially available to unemployed workers who are struggling to find a job in some states that were hit the hardest by the jobs slump (see map).  That greatly raises the risk that unemployed workers will run out of UI benefits before they find another job, imposing even greater hardship on them and their families.  It also reduces the amount of support that UI — one of our highest-bang-for-the-buck stimulus programs — can provide for the struggling recovery.  And, to add insult to injury, the Republican proposal contains onerous requirements on qualified UI applicants, such as drug tests and requirements to hold or be working toward a GED, that would make it harder for them to receive benefits at all.

Projected Loss of Weeks of UI Under GOP Proposal Compared with Continuation of Current Policy
Current policy provides an unprecedented amount of federal emergency UI because this is an unprecedented economic slump.  Two-fifths of the unemployed have been looking for work for more than 26 weeks, which is the maximum number of weeks of regular UI available in most states.  At no time in the last 60 years (before the current downturn) has the share of the unemployed who have been out of work this long been this high.  Pew Economic Policy Group research indicates that more than half of the long-term unemployed have been searching for work for more than a year.

Under the Republican proposal, workers who exhaust their 26 weeks of regular UI early next year would be eligible for up to 20 additional weeks of federal emergency UI in all states.  In states with an unemployment rate of 6 percent or higher, there would be up to another 13 weeks available, but in most of them that would be it.  Many unemployed workers now receiving emergency federal benefits would experience a premature cutoff next year compared with current policy.  The biggest cuts would come in states with the highest unemployment rates.

Continuing current federal UI policy into 2012 would provide $45 billion of support for a recovery that’s still struggling to gain traction.  The Republican UI proposal would provide over $10 billion less support for the recovery and impose needless hardship on the long-term unemployed who are struggling to find a job in an economy in which there are still four times as many people looking for work as there are job openings.

We can only wish we had a job market that was improving so fast that the Republican policy made sense.

Here’s more information about that proposal for our wonkier readers:

The Republican proposal maintains the 20-week first tier of Emergency Unemployment Compensation (EUC) available in all states, replaces the 14-week second tier available in all states with a 13-week second tier available only in states with an unemployment rate above 6 percent, and eliminates the third and fourth tiers of 13 weeks in states with an unemployment rate of 6 percent or higher and 6 weeks in states with an unemployment rate of 8.5 percent or higher, respectively.  It continues the policy of allowing states to adopt a three-year “lookback” for the Extended Benefits (EB) program.  However, a four-year lookback is necessary to prevent EB from triggering off in most states over the course of 2012, causing states to lose either 13 or 20 weeks of EB depending on their particular circumstances.

State Tax Hikes on the Rich Back on the Table

December 9, 2011 at 3:01 pm

State policymakers are seriously considering an important policy option:  Income tax increases on the wealthiest families in their states.

New York is about to impose higher taxes on individual taxpayers with annual incomes over $1 million and couples with incomes over $2 million. California’s governor and others in the Golden State have issued proposals for new tax rates on their wealthiest residents.  Legislators in New Jersey have vowed to push again to reinstate that state’s millionaires tax, an idea that polls show is increasingly popular, despite a promised veto from that state’s governor.  There are also proposals in Maryland and Washington that would reinstate or create taxes on high-income taxpayers.

There are compelling reasons for this increased interest:

  • States need the revenue from such taxes to reverse some or all of their recent deep cuts to education, health care and other areas important for sparking economic growth.
  • Such taxes are a reasonable response to the problem of widening income inequality and reduced mobility and opportunity.
  • The doomsday predictions that modest state tax increases on the wealthy few would cause them to leave have proven unfounded.

In short, raising taxes on a state’s wealthiest households can avert or reverse cuts in important services and also address the problem of income inequality, without negative effects.

Corporate Tax Holiday Has No Place on Payroll Tax-Cut Extension Bill

December 8, 2011 at 10:07 am

What should be a straightforward decision to extend the payroll tax cut for another year (and, ideally, make it more generous) is growing unnecessarily complicated.  House Majority Leader Eric Cantor is now pushing to attach to it a tax holiday for foreign profits of multinational corporations.

Failure to Extend the Payroll Tax Cut Would Shrink Paychecks of Working Americans Letting the payroll tax cut expire in just a few weeks would shrink the paychecks of millions of working families (see table), and economists warn that it could cost jobs and slow the recovery.   But the urgent need for an extension doesn’t make a new corporate tax holiday — an unrelated and deeply ill-advised idea — any more sensible.

As we’ve explained, the first tax holiday for “repatriated” foreign profits, back in 2004-2005, proved an embarrassing failure.  Firms mostly used the profits not to invest and create jobs in the United States but instead for things like stock buybacks and larger dividends.  Some of the firms that repatriated the largest amounts then laid off thousands of U.S. workers.

A second holiday would be worse.  By leading firms to expect more such holidays in the future, it would be an open invitation for them to shift more jobs, investment, and profits overseas.  This is part of the reason that the Joint Tax Committee, Congress’s official scorekeeper on tax legislation, estimates that it would cost taxpayers tens of billions of dollars over the next ten years.

The Congressional Budget Office recently ranked a repatriation holiday dead last, per dollar of federal cost, among the 13 policy options it analyzed for creating jobs in the current weak economy (see graph below).

Helping nurses, truck drivers, and all other working people across the country by extending the payroll tax cut should be an end unto itself.  Congress shouldn’t tack on a misguided windfall for foreign profits.

CBO Ranks “Repatriation Holiday” Dead Last in Job Creation

War, Taxes, and Priorities

December 7, 2011 at 5:30 pm

The Senate will shortly consider the McConnell-Hatch balanced budget amendment, which prohibits any deficit in any year, prohibits tax increases, and caps total spending at implausibly low levels (about 16½ percent of gross domestic product) — requiring a two-thirds vote of the House and Senate to overturn these provisions.  It also requires a three-fifths vote of both houses to raise the debt limit.

We’ve written about the serious adverse economic effects of creating a constitutional requirement to balance the budget every year, regardless of the state of the economy, and about the massive cuts that the spending cap would produce in Social Security, Medicare, and all other programs.

But it’s worth noting — especially on the anniversary of the Pearl Harbor attack, which plunged this nation into its biggest and costliest war — that while the amendment would allow Congress to run deficits, exceed the spending cap, or raise the debt limit by a simple majority vote if the nation is officially at war, raising taxes would still require a two-thirds vote of both the House and Senate.

In other words, if the nation is at war, majority rule would determine how much we spend to prosecute that war, and majority rule would allow us to run the deficits and accumulate the debt to finance that spending.  But the nation could not cover any portion of the war’s costs by raising taxes unless it could muster a two-thirds vote in both houses.

The implication is that keeping taxes low represents a higher national priority than raising revenue to finance a war.

Even if there were no other reasons to oppose the amendment, this is reason enough.