Off the Charts Blog | Center on Budget and Policy Priorities

This week on Off the Charts, we focused on the federal budget and taxes, SNAP (formerly food stamps), health reform, the economy, and state budgets and taxes.

• On the federal budget and taxes, Kathy Ruffing warned that the House-passed “debt prioritization” measure is simply default by another name.  Chye-Ching Huang laid out key issues in reforming international tax rules and explained that a new study from Treasury Department analysts highlights the risks of corporate tax reform.  And, in advance of Mother’s Day, Arloc Sherman noted the benefits of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) for mothers and children.

• On SNAP, a series of posts from Stacy Dean and Dottie Rosenbaum explained that the program helps vulnerable people, showed that it encourages and rewards work, and highlighted its strong record of efficiency.

• On health reform, we excerpted Paul Van de Water’s congressional testimony on the law’s tax on insurance providers.  Edwin Park explained why changes promoted by health reform opponents would undermine the law’s Medicaid expansion.  Jesse Cross-Call noted, in advance of Mother’s Day, that state policymakers could better support all women by taking advantage of the Medicaid expansion.

• On the economy, we highlighted a New York Times op-ed by Jared Bernstein on why full employment should be a central policy goal.  Chad Stone reflected on the relationship between U.S. debt and economic growth in light of errors found in the influential paper by economists Carmen Reinhart and Kenneth Rogoff.

• On state budgets and taxes, we highlighted a radio interview in which Michael Mazerov made the case for the Senate-passed bill requiring all large Internet retailers to charge any applicable sales taxes.

In other news, we released Paul Van de Water’s testimony on health reform’s insurance provider tax and a fact sheet on how many lower-income working mothers in each state receive the EITC and CTC.  We also updated our state-by-state fact sheets on who benefits from SNAP and updated our backgrounder on Medicaid.

With Mother’s Day approaching and policymakers considering overhauling the tax code this year, it’s worth noting that two key tax credits for low-income workers lifted 2.3 million mothers out of poverty in 2011 (the most recent year available), using a Census Bureau poverty measure that counts tax credits and government benefits.

Our new fact sheet gives state-by-state figures on how many mothers in working families benefit from those credits — the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).

The EITC and CTC not only help working parents make ends meet but are proven, powerful tools for reducing child poverty — lifting 4.9 million children out of poverty in 2011 — and advancing children’s long-term well-being.  Children of EITC recipients, for example, tend to do better in school, are likelier to attend college, and earn more as adults, research shows.

For more, see our backgrounders on the EITC and CTC.

The first two parts of this series examined the people whom SNAP serves and the ways that it encourages work.  This post highlights its strong record of efficiency.

• SNAP has one of the most rigorous quality control systems of any public benefit program. Each year, states pull a representative sample of cases (totaling about 50,000 nationally) and review their decisions on which applicants received benefits and how much.  Federal officials then double-check a subsample of the cases.  States face federal financial sanctions if they don’t lower high error rates.

• Only 3 percent of SNAP benefits represent overpayments, meaning they either went to ineligible households or went to eligible households but in excessive amounts. SNAP achieved its lowest error rate on record in fiscal year 2011, with a national overpayment rate of just 2.99 percent (see graph).  The underpayment rate that year was 0.81 percent. Thus, the net loss to the federal government — the amounts lost through over­payments minus those saved by underpayments — was only 2.2 percent.

• Relatively few payment errors reflect dishonesty or fraud. The overwhelming majority result from honest mistakes by recipients, eligibility workers, data entry clerks, or computer programmers.  States report that almost 60 percent of the dollar value of overpayments and almost 90 percent of the dollar value of underpayments were their fault, not recipients’.  Much of the rest of the overpayments resulted from innocent errors by households that had trouble navigating SNAP’s complex rules.

• The Agriculture Department estimates it has cut the sale of SNAP benefits for cash by three-quarters over the past 15 years, to 1 percent of all benefits. To reduce SNAP trafficking, which violates federal law, SNAP benefits now come in the form of an electronic debit card that recipients can use only to buy food.  Retailers or recipients who defraud the program by trading SNAP for money or misrepresenting their circumstances face tough criminal penalties.  Over the years, the Agriculture Department has disqualified thousands of retail stores from the program for trafficking or other violations of program rules.

• Almost 95 percent of federal SNAP spending goes directly to families to buy food. Most of the rest goes toward administrative costs, including reviews to determine that applicants are eligible, monitoring of retailers that accept SNAP, and anti-fraud activities.

For more information, see our Chart Book.

Next up:  SNAP responded as designed to the recession and will shrink as the economy recovers.

The House narrowly approved a “debt prioritization” measure today that would — in case of a prolonged standoff over raising the debt ceiling — direct the Treasury to pay bondholders and Social Security recipients first.

The bill says nothing about the millions of other people and businesses who count on timely federal payments — including veterans, doctors and hospitals who treat Medicare patients, soldiers, state and local governments, private contractors, and recipients of unemployment, SNAP, and Supplemental Security Income benefits.

Lawmakers shouldn’t fool themselves:  simply putting bondholders at the front of the queue won’t avert financial chaos or soothe creditors.  One rating agency explicitly warned in January that honoring interest and principal payments but delaying payment on other obligations would trigger a review and hence a possible downgrade.

We’ve said before that lawmakers shouldn’t play politics with the debt ceiling.  The United States is virtually alone among advanced countries in setting a debt ceiling independently of the decisions that drive higher debt in the first place — the decisions about how much to spend and how much to  collect in revenues.  Among other problems, that disconnect enables lawmakers to support tax cuts and wars that necessitate borrowing (see graph), then oppose raising the debt limit to let the government pay the resulting bills.

The most sensible approach would be to abolish the debt limit altogether, which serves no useful purpose and provides opportunities for political mischief while putting the nation’s financial standing at risk.  The Financial Times and the Economist agree, and economists surveyed by the University of Chicago overwhelmingly agreed that the debt ceiling “creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.”

At the very least, lawmakers should raise the debt limit in a timely way and for an extended period of time so that the government does not risk defaulting on any of its obligations.

In testimony today before a House Small Business subcommittee hearing, CBPP Senior Fellow Paul Van de Water explained how the health insurance tax — a fee on health insurance providers that is part of the Affordable Care Act (ACA) — will help to pay for extending health coverage to 27 million people and allow reform to move forward in a fiscally responsible way.  Here’s an excerpt:

The law specifies how much the fee is to raise each year; this total is apportioned among providers based on their share of the U.S. health insurance business. Over the 2014-2023 period, the fee will raise about $116 billion. . .

As with any excise tax, supply and demand will determine how the tax’s burden is ultimately split between providers and purchasers.  Insurers have recently turned in strong financial results and thus are well positioned to bear some of the tax. But a portion of the tax is likely to be passed on to consumers.  The Joint Committee on Taxation estimates that premiums subject to the fee will be 2 to 2½ percent higher than they would otherwise be.

That is only part of the story, however.  Health reform also contains many provisions that will slow the growth of premiums.  The new health insurance exchanges will increase competition among plans and create economies of scale.  Standardization of benefits and the prohibition of medical underwriting will reduce administrative costs.  The individual mandate, as well as the subsidies to help people purchase coverage, will bring more relatively healthy workers into the insurance pool.  Premium increases of 10 percent or more are subject to state or federal review, and insurers must provide rebates to their customers if they spend less than 80 percent of premiums on medical care.  The ACA also includes a large number of initiatives to identify and implement more efficient ways of delivering medical services.

All things considered, CBO estimates that health reform will slightly reduce premiums for employer-sponsored health insurance in the near term.

Click here for the full testimony.