Want to Help Kids Using Tax Code? Don’t Exclude Working Poor Families

April 3, 2014 at 1:14 pm

The New York Times’ latest “Room for Debate” feature asks whether people without children should subsidize tax breaks for the costs that parents bear.

In my contribution, I explain that doing more to help struggling parents can help their children both now and in adulthood.  I also explain that a bill sponsored by Senator Mike Lee (R-UT), which purports to help children, actually would exclude children in many working-poor families:

The bill’s new Child Tax Credit wouldn’t help many working-poor or near-poor parents because they’d only receive it if their combined income and payroll taxes exceeded their existing Earned Income Tax Credit.

Worse, Lee’s plan would let three tax provisions that now help more than 25 million children expire at the end of 2017. These provisions increase the earned income credit for families raising three or more children, expand marriage penalty relief, and improve the Child Tax Credit so it reaches more low-income working families and expands for many others.

In 2018, under the Lee plan, a mother with two kids working full time at the minimum wage (earning $14,500) would lose about $1,725: she’d no longer qualify for the existing Child Tax Credit, and she’d earn too little to qualify for Lee’s new credit.

Policymakers should make these provisions permanent.  In addition, policymakers who want to use the tax code to help children should realize, I explain, that they can help children by also helping “childless workers,” the sole group that the federal tax system taxes into poverty.

The Urban Institute and the Tax Policy Center’s Elaine Maag makes a similar point.  You can read Elaine’s and the other contributors’ pieces here, and click here to read my full column.

This Morning: CBPP Event on Full Employment

April 2, 2014 at 8:18 am

CBPP and our Senior Fellow Jared Bernstein will kick off our year-long project on making full employment a national priority with a keynote address from former Treasury Secretary Larry Summers and then a panel among Bernstein and other leading economists.  (Watch a live webcast.)  The project comprises eight papers released today by top economists on how to start the nation on a path back to full employment.

Bernstein’s overview piece makes three basic points:

First, the absence of full employment labor markets, where the vast majority of job-seekers can handily find work, has been one of the most damaging aspects of the US economy over many recent years.

Second, over the past four decades, full employment job markets have been the exception, not the norm.  This has caused many economic problems, from stagnant real earnings, to rising inequality, to slower macroeconomic growth.

Third, the generalized absence of full employment is not an act of nature.  It is the outcome of negligent public policy that can be corrected.  There are numerous steps policy makers can take to boost labor demand, create more and better jobs, and to get the US economy on a path towards full employment.

The other papers include:

  • Larry Summers, Brad DeLong, and Laurence Ball on why the conventional wisdom that fiscal policy should focus on controlling budget deficits rather than stabilizing the business cycle is wrong;
  • Susan Houseman on the real causes of the significant decline in manufacturing jobs;
  • Dean Baker on why the trade deficit is a notable obstacle to full employment;
  • Ross Eisenbrey on why improving job quality is integral to addressing income inequality;
  • Kevin Hassett and Michael Strain on how work-sharing programs can allow more people to keep their jobs in times of labor market slack;
  • Harry Holzer and Robert Lerman on the benefits of apprenticeships and other work-based learning; and
  • LaDonna Pavetti on the potential for the federal government to subsidize jobs during a downturn.

Greenstein on the New Ryan Budget

April 1, 2014 at 5:09 pm

CBPP President Robert Greenstein just issued a statement on House Budget Committee Chairman Paul Ryan’s new budget plan.  Here’s the opening.

House Budget Committee Chairman Paul Ryan’s new “Path to Prosperity” is, sadly, anything but that for most Americans.  Affluent Americans would do quite well.  But for tens of millions of others, the Ryan plan is a path to more adversity.

The budget documents that Chairman Ryan issued today laud his budget for promoting “opportunity,” even as his budget slashes Pell Grants to help low- and moderate-income students afford college by more than $125 billion over ten years and cuts the part of the budget that funds education and job training (non-defense discretionary funding) far below the already low sequestration levels.  The budget documents also claim to help the poor, even as the Ryan budget shreds key parts of the safety net; for example, it resurrects the draconian benefit cuts in SNAP (food stamps) that the House passed last fall and adds $125 billion of SNAP cuts on top of them.

The budget also swells the ranks of the uninsured by at least 40 million people.  It repeals the Affordable Care Act (ACA), taking coverage away from the millions of people who have just attained it, and cuts Medicaid by $732 billion (by 26 percent by 2024) on top of the cuts from repealing the ACA’s Medicaid expansion.  Yet it offers no meaningful alternative to provide health coverage to the tens of millions of uninsured Americans.

That’s only a partial list of its cuts.  The budget cuts non-defense discretionary programs by $791 billion below the sequestration level, shrinking this part of the budget to less than half its share of the economy under President Reagan.  These cuts are entirely unspecified, as are more than $500 billion of cuts in entitlement programs.

Meanwhile, the budget aims to cut the top individual tax rate and the corporate income tax rate to 25 percent, eliminate the Alternative Minimum Tax, and repeal the ACA’s revenue-raising provisions.  These tax cuts would cost about $5 trillion over ten years, based on past analyses by the Urban-Brookings Tax Policy Center.  Yet the Ryan plan doesn’t identify a single tax break to close or narrow to cover the lost $5 trillion, even though his budget assumes no revenue losses overall.  And it ignores the hard fact that, in his recent tax reform plan, House Ways and Means Committee Chairman Dave Camp only lowered the top individual tax rate to 35 percent even after identifying scores of politically popular tax breaks to narrow or eliminate.

The Ryan budget is thus an exercise in obfuscation — failing to specify trillions of dollars that it would need in tax savings and budget cuts to make its numbers add up.  No one should take seriously its claim to balance the budget in ten years.

It’s also an exercise in hypocrisy — claiming to boost opportunity and reduce poverty while flagrantly doing the reverse.  Here’s just one example: Ryan has criticized some of the poor for not working enough and says that he wants to promote work and opportunity.  But his budget eliminates Pell Grants entirely for low-income students who have families to support, must work, and are attending school less than half time on top of their jobs.

Click here for the full statement.

Ryan Budget Again Proposes a Medicaid Block Grant, Adding Millions to the Ranks of the Uninsured and Underinsured

April 1, 2014 at 3:41 pm

House Budget Committee Chairman Paul Ryan’s new budget again proposes to radically restructure Medicaid by converting it into a block grant, and it would cut federal Medicaid funding steeply, by $732 billion over the next decade.  It would also repeal health reform’s Medicaid expansion.  The combined total cut to Medicaid would exceed more than $1.5 trillion over ten years, relative to current law.  All told, it would add tens of millions of Americans to the ranks of the uninsured and underinsured.

Repealing the Affordable Care Act’s Medicaid expansion means that 13 million people would lose their new coverage or no longer gain coverage in the future; 13 million is the Congressional Budget Office’s (CBO) current estimate of the number of people who would eventually gain coverage under the Medicaid expansion, though the number could rise as high as 17 million if all states adopt the expansion.  In addition, the large and growing cut in federal Medicaid funding from the block grant would almost certainly force states to sharply scale back or eliminate Medicaid coverage for millions of low-income people who rely on it today.  (More than 40 million people would likely become uninsured as a result of the Ryan budget overall after also taking into account the repeal of health reform’s exchange subsidies.)

Under the Ryan plan, the federal government would no longer pay a fixed share of states’ Medicaid costs starting in 2016.  Instead, states would get a fixed dollar amount that would rise annually only with inflation and population growth.

  • The block grant funding would fall further and further behind state needs each year.  The annual increase in the block grant would average about 3.5 percentage points less than Medicaid’s currently projected growth rate over the next ten years, which accounts for factors like rising health care costs and the aging of the population.  Federal Medicaid and Children’s Health Insurance Program (CHIP) spending in 2024 would be $124 billion less — or 26 percent less — than what states would receive under current law, according to the Ryan budget (see chart).  And the cuts would keep growing after that.
  • Altogether, the block grant would cut federal Medicaid spending by $732 billion from 2015-2024, according to the Ryan budget plan.  (It is conceivable that a small share of these cuts could come from CHIP, which the Ryan budget would merge into its new Medicaid block grant.)  This would be an estimated cut to federal Medicaid and CHIP funding of more than 19 percent over the ten years as a whole, compared to current law — and doesn’t count the loss of the large additional funding that states would receive to expand Medicaid under health reform.
  • The loss of federal funding would be even greater in years when enrollment or per-beneficiary health care costs rose faster than expected, such as during a recession or after the introduction of a new, breakthrough health care technology or treatment that improved patients’ health but increased cost.  Currently, the federal government and the states share in those unanticipated costs; under the Ryan plan, states alone would bear them.

As CBO concluded when analyzing the similar Medicaid block grant proposal from the Ryan budget plan from two years ago, “the magnitude of the reduction in spending . . . means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both.  Cutbacks might involve reduced eligibility . . . coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries — all of which would reduce access to care.”

In making these cuts, states would likely use the expansive additional flexibility that the Ryan plan would give them.  For example, the plan would likely let states cap Medicaid enrollment and turn eligible people away from the program; under current law, states must accept all eligible individuals who apply.  It also would likely let states drop certain benefits that people with disabilities or other special health problems need.

The Urban Institute estimated that Chairman Ryan’s similar block grant proposal in 2012 would lead states to drop between 14.3 million and 20.5 million people from Medicaid by the tenth year (outside of the effects of repealing health reform’s Medicaid expansion).  That would result in a reduction in enrollment of between 25 percent and 35 percent.  The Urban Institute also estimated that the block grant likely would have resulted in cuts in reimbursements to health care providers of more than 30 percent by the tenth year.  This year’s proposal likely would result in cuts that are similarly draconian.

Why Raising Health Reform’s Threshold for Full-Time Work Would Be Counterproductive

April 1, 2014 at 1:03 pm

The House this week will consider the “Save American Workers Act,” which would raise the threshold for full-time work under health reform from 30 to 40 hours a week.  As we have explained, however, this step would aggravate the very problem that the bill purports to solve — that health reform may lead to more part-time work.

Health reform requires employers with at least 50 full-time-equivalent workers to offer coverage to full-time employees or pay a penalty.  Critics claim that employers are shifting some employees to part-time work to avoid offering them health insurance.  As the Wall Street Journal has reported, however, recent data provide scant evidence of such a shift.  And there’s every reason to expect the impact to be small as a share of total employment.

Raising the threshold from 30 to 40 hours would make a shift toward part-time employment much more likely — not less so.  Only about 8 percent of employees work 30 to 34 hours a week — that is, at or modestly above health reform’s 30-hour threshold.  But 43 percent of employees work 40 hours a week and thus would be vulnerable if the threshold rose to 40 hours (see chart).

If you exclude workers at firms that already offer health insurance and thus won’t be tempted to cut workers’ hours, more than twice as many workers would face a high risk of reduced hours if the threshold rose to 40 hours, according to New York University economist Sherry Glied.

The Congressional Budget Office (CBO) confirms that raising the threshold could put more workers at risk.  “Because many more workers work 40 hours per week (or slightly more) than work 30 hours per week (or slightly more),” CBO writes, raising the threshold “could affect many more workers than are affected under current laws.”

Equally or more important, CBO finds that the House bill would increase budget deficits by $74 billion over ten years (as fewer employers would pay penalties for not offering coverage) and leave more people uninsured.

Health reform’s critics are touting reports that some school districts have limited or reduced employees’ hours in response to health reform.  Nevertheless, the National Education Association (NEA) opposes the bill.  Some employers have overreacted because they don’t fully understand the employer responsibility requirement, the NEA finds, and others have simply used the requirement as an excuse to cut hours.  The bill would do nothing to resolve these issues.