The federal government borrows money by issuing bonds.  About one-third of that debt is held within the government, by the Social Security Trust Fund.  Of the rest of the debt, nearly one-half is held by foreign governments; the remainder by corporate, pension fund, and other private financial interests.  The U.S. Treasury borrows enough to fill the gap between revenues collected and obligations to spend (that is, the deficit).  Despite the fact that Congress approves federal spending, it separately sets in statute limits on how much the federal government can borrow.

If the federal government hits up against the statutory ceiling on debt and Congress refuses to raise it, the federal government would not be able to spend more than the revenues it takes in each month.  H.R. 807 sets priorities for which bills to pay, placing bondholders at the front of the line.  Those who have bought U.S. bonds would be paid their principal and interest, and the Treasury would be authorized to exceed the limit on borrowing if necessary to prevent any default on bonds.  The bill was amended to add federal bonds held by the Social Security Trust Fund to its “must-pay” list.  By prioritizing repayment of funds borrowed by the federal government from the Social Security Trust Fund, it would make it make it possible to keep paying Social Security benefits without interruption.

H.R. 807 would not prevent the federal government from reneging on its other funding commitments, however, if the debt ceiling were not raised by Congress.  This legislation would in effect re-set the priorities established by Congress when it passes any legislation related to funding.  Bondholders and Social Security come first; everything else government does, from Medicaid to transportation to nutrition aid, is funded in part or not at all.

The Obama Administration issued a statement promising to veto this legislation if it made it to the President’s desk.  The Democratic leadership in the Senate has also voiced opposition.  However, Senator Pat Toomey (R-PA) previously introduced the Ensuring the Full Faith and Credit of the United States and Protecting America’s Soldiers and Seniors Act (S. 46) which he will seek to move as a stand-alone bill or attached to other legislation.  It has three items on its “must-pay” list – bondholders, Social Security bonds and beneficiaries, and military salaries.  As with H.R. 807, the Treasury would be allowed to borrow, even if it exceeds the existing debt ceiling, in order to pay these obligations.  The Senate Democratic caucus is not expected to support this legislation either.

There is reason to doubt that continuing to pay bondholders and a few powerful constituencies will end the risk to U.S. fiscal stability if Congress refuses to allow borrowing to pay its other bills.  When Standard and Poor’s downgraded the federal credit rating in 2011, it did so because it felt the stalemate that left us uncomfortably close to default made the federal government “less stable, less effective and less predictable” in its financial management.  New cliff-hanging negotiations threatening massive non-payment of bills and salaries will not be seen as a boon to stability and predictability.

The post CHN: Choosing Which Federal Debts to Honor; House Passes Bill to Protect Only Bondholders, Social Security If Federal Borrowing Authority Expires appeared first on Coalition on Human Needs.

The Politics.  The President’s budget includes $166 billion in job creation initiatives, investing in infrastructure improvements, clean energy, and a comprehensive re-building approach in 20 poor communities.  It commits modest funding towards all levels of education in addition to the early childhood initiative.  But by using the budget as a platform to put forward a deficit reduction offer already made to Speaker Boehner (R-OH) and rejected by him, it makes cuts in Social Security strongly opposed by most Democrats and raises less revenue than the Senate budget plan.  As a gambit to demonstrate his willingness to compromise and to smoke out Republican unwillingness, the budget seems to have worked.  Pundits praised the elements of compromise and Republicans scrambled away from previous support for the Social Security change in order to stay firmly opposed to the President.  (Last December, Bloomberg News reported that Speaker Boehner was “pressing harder for the CPI revision than for other entitlement changes…”  Senate Minority Leader McConnell (R-KY) was looking for higher Medicare premiums for upper-income retirees, raising the age to become eligible for Medicare, and reducing Social Security benefits by shrinking the adjustment for inflation (the “chained CPI”) in order to consider new revenue last winter.)  But although the President included the reduced inflation adjustment and higher Medicare payments for upper-income retirees, his budget was rejected out of hand by the Republican leaders.

The President has said that he will only agree to cut Social Security as part of an overall deal that increases revenues and includes some economic investments.  But many strong advocates for Social Security and other vital safety net programs strongly oppose the Social Security cut under any circumstances.  Even those who could imagine it as part of a plan with healthy doses of revenue and job creation are worried now that the Social Security cut will find its way into a far less helpful budget plan.

The Math.  The President proposes $3.78 trillion in spending and $3.03 trillion in receipts for FY 2014, leaving a deficit of $744 billion, down from a deficit of $973 billion this year.  The deficit will decline from 6 percent of GDP now, to 4 percent in FY 2014, and down to 1.7 percent of GDP in 2023.

Revenues.  The budget includes $583 billion in revenue increases over 10 years from limiting high-income deductions to 28 percent and from increasing taxes on millionaires.  It adds another $100 billion in revenues from the chained CPI proposal’s effects on tax payments, and adds $78 billion in tobacco taxes to pay for the early childhood initiative.  In a move disappointing to many human needs advocates, the President’s budget lists a large number of corporate tax loophole-closings, but holds them in reserve to pay for an unspecified reduction in corporate tax rates.  Advocates are seeking a net increase in revenues from any corporate tax reform agreement, but the President would make reform revenue-neutral.

Spending Overview:  The President’s budget would replace the multi-year cuts that started this year with sequestration with the new revenue, plus about $400 billion in health care savings (largely Medicare), $130 billion from spending cuts due to the chained CPI reduced inflation adjustment, another $200 billion in savings in other mandatory programs (such as farm subsidies), and $200 billion in appropriations cuts, split evenly between the Pentagon and other programs.  By reducing the deficit, interest payments will decline by $210 billion over the same 10-year period.  Together, the revenues and spending cuts will reduce the deficit by $1.8 trillion.  The Administration estimates prior deficit reduction at $2.5 trillion; adding in his new budget proposal, deficit reduction would total $4.3 trillion over 10 years.

Budget Comparisons:  The President’s budget raises less revenue than the Senate’s $975 billion from progressive sources over 10 years.  The President’s plan cuts mandatory spending more ($600 billion in health care and other savings); the Senate’s mandatory savings total $350 billion.  The President cuts discretionary spending (appropriations) less than the Senate.  The Senate cuts $240 billion from the Pentagon, compared with $100 billion in the President’s budget.  The Senate cuts domestic and international appropriations by $142 billion, compared with the President’s $100 billion.

The Administration’s and Senate’s plans both differ starkly from the House budget, which includes no net revenue increases, and cuts spending by about $5 trillion, plus another $700 billion in interest savings.  The Pentagon is not cut.  About two-thirds of the cuts affect low-income programs, including deep cuts in Medicaid and SNAP/food stamps.  (For more details about the House and Senate budgets see the March 18 Human Needs Report.)

Details on Low-Income Programs in the President’s Budget:

Early Childhood:   The $75 billion 10-year Preschool for All proposal to ensure that every low- and moderate-income four year old gets pre-kindergarten education is joined by $1.4 billion next year for Early Head Start and child care partnerships to increase high quality early learning programs for infants and toddlers through age three.  Further supporting young families, the budget would expand voluntary home visiting services for families with newborns, with $15 billion over ten years, starting in FY 2015.

Aid to Poor Communities:  The President’s budget attempts a comprehensive approach, putting together resources from multiple government agencies to attack both the causes and toxic by-products of poverty.  It would create 20 Promise Zones, coordinating housing, education, anti-violence, and other economic development initiatives.  The Choice Neighborhoods Initiative would provide $400 million to improve distressed HUD-assisted housing in very poor communities (up from $120 million this year).  Homelessness Assistance Grants are increased by about $350 million, not counting the extra across-the-board cuts now being made.  Apart from the early childhood education expansions, there are initiatives to improve high schools and to invest in community colleges, both targeted to low-income community needs.  Related to the Administration’s push to reduce gun violence, the budget includes $160 million in new funds for Project AWARE, providing for more trained mental health providers able to work with children and youth in school, as well as more public safety support in poor communities.

The budget repeats the President’s $12.5 billion Pathways Back to Work proposal, which would fund summer and year-round jobs and training for low-income youth and provide subsidized jobs and training for the long-term unemployed.  This initiative was part of the President’s unsuccessful American Jobs Act proposal last year.  In part, it builds on the success of subsidized jobs funded through a now-expired Temporary Assistance for Needy Families emergency fund, in which hundreds of thousands of temporary jobs were created.

There are broader job creation initiatives, with funding to rebuild infrastructure, invest in clean energy, and create manufacturing hubs.  These are not specially targeted to help the poor, but overall efforts to create jobs will be a help, especially if the Administration connects job training for low-income workers to these new plans.

Reverses SNAP Cuts:  Millions of poor people are now facing a reduction in SNAP/food stamp benefits scheduled to start in November.  The President’s budget would cancel that loss in food assistance, estimated to cost a family of three $20-$25 a month.  In another critical area where the budget at least partially reverses cuts to low-income programs, rental housing vouchers for low-income families are increased by more than $1 billion.  The automatic cuts now in effect could reduce the number of vouchers going to low-income families by 140,000, out of 2.2 million households now benefiting from this form of housing assistance.  The President’s budget would end these cuts.

Makes Low-Income Tax Credits Permanent:  While the last deficit reduction deal made the Bush tax cuts permanent for all but the richest 1 percent, the low-income tax credits were only extended for five years.  The Obama budget makes the current levels permanent for the Child Tax Credit, Earned Income Tax Credit, and the American Opportunity Tax Credit (the latter for college students).  The Child Tax Credit and EITC lifted more than 9 million people out of poverty in 2011.  However, the chained CPI proposal will reduce the value of the Earned Income Tax Credit over time.

Protects Health Coverage:   The budget protects Medicaid and the Children’s Health Insurance Program.  It continues implementation of the Affordable Care Act, showing states that they can count on the promised federal support for expanding their Medicaid programs.

Cuts to Low-Income Programs:  Unaccountably, despite the Administration’s emphasis on interconnected programs to maximize effectiveness, the budget repeats its proposal to slash the Community Services Block Grant to $350 million (down from $682 million this year, not counting the across-the-board cuts).  These funds support community action agencies nationwide, which administer Head Start, home energy assistance, emergency food, and local economic development and other anti-poverty initiatives.  These agencies leverage private dollars and do the kind of coordination of services the Administration is counting on.  The budget also cuts the Low Income Home Energy Assistance Program (LIHEAP) by more than $500 million, counting this year’s across-the-board cuts.

Scope:  By choosing to stick to the deficit reduction offer made and rejected last year, the budget cannot support enough job creation and economic development to meet the needs of the current weak economy.  There is no doubt that there is strong opposition to making the needed investments.  But just as President Obama’s leadership has maximized public support for gun legislation and helped to shape public support for immigration reform, his leadership in pressing for jobs and shared prosperity will matter.

The post CHN: The President’s FY 2014 Budget: Important Initiatives Face Uphill Battle appeared first on Coalition on Human Needs.

The House Goes Home for Christmas: Its Top Priorities: Slash Health Care, Nutrition, and Federal Pay, Raise Taxes on Working Families, Preserve Pentagon Spending, and No Fingerprints on Tax Increases Even for the Very Rich

If you are reading this, the world did not come to an end on December 21.  Congressional action did, though, at least through Christmas.  Despite predictions by Speaker Boehner (R-OH) and Majority Leader Cantor (R-VA) that there would be enough Republican votes for Boehner’s plan to raise tax rates on income over $1 million, their caucus rebelled.  Without enough votes for passage, Speaker Boehner cancelled the vote, and the House went home.  They might come back before New Year’s, if a deal can be put together to avert the spending cuts, tax increases, and loss of unemployment benefits for 2 million long-term jobless people that will mark the start of 2013.

The House did cast votes on Thursday evening.  They re-adopted a bill they had passed last spring, which replaced the $110 billion in automatic spending cuts scheduled to start January 1 with a large number of domestic cuts.  That bill went nowhere last spring, and the President and Senate Majority Leader Reid (D-NV) confirmed its fate will be the same now.  The new-old bill, The Spending Reduction Act of 2012 (H.R. 6684), passed 215-209, with no Democrats voting for it and 21 Republicans joining all 188 Democrats to oppose.

The bill was not originally part of Speaker Boehner’s plan for Thursday.  He had hoped there would be enough support to pass an amendment he called “Plan B”, continuing the current tax rates for everybody except millionaires, whose income tax rates would rise to where they were before the Bush tax cuts were enacted.  Because other favorable treatment for millionaires and multi-million dollar estates would remain, those with incomes over $1 million would still get tax cuts averaging $50,000 each.  Treatment of 25 million low-income working families with children was not so favorable – they would see their taxes rise by an average of $1,000 each.  (For more detail, see below.)  Even Grover Norquist, originator of the anti-tax pledge that has a stranglehold on most Republicans, said that passing Boehner’s “Plan B” would be okay, because it would be preventing a tax increase on everybody else.  But that wasn’t enough to gather the near-unanimity among Republicans necessary to pass Boehner’s bill with little or no Democratic support.

Republican House members either objected to raising any taxes on anyone, balked at passing something that did nothing to stop the looming Pentagon and domestic spending cuts, or both.  To mollify enough of them, the Speaker agreed to let the House vote again on the bill to replace the “sequester,” or automatic spending cuts.  In voting for this, the majority made its priorities clear.  The bill would eliminate all the $55 billion in Pentagon sequestration cuts in 2013 and would replace about $38.5 billion in across-the-board cuts to domestic appropriations, in part by substituting $19.1 billion in spending reductions to be achieved by lowering the total cap on appropriations for FY 2013.  Medicare cuts of about $16 billion that were originally included in sequestration would stay in place.   The money lost by stopping the Pentagon cuts and some of the domestic reductions would be made up (and then some) by more than $217 billion in cuts over 10 years  to SNAP/food stamps, Medicaid, premium subsidies and other funding for the new health care law, the Child Tax Credit, and several consumer protection measures.  It also raised nearly $88 billion in revenues over 10 years by requiring federal employees to pay more of their retirement costs.  (More details about these provisions below.)

But although the House passed these spending cuts, it did not win over enough Republicans to get a majority for the Plan B increase in millionaire tax rates.

So what’s next?  Despite repeated assertions on the House floor by House Budget Committee Chair Ryan (R-WI) and others that President Obama has not come out with specific spending cut proposals in his deficit reduction plan, the President has put forth several offers in his negotiations with Speaker Boehner.  The President’s most recent proposal includes tax cuts for everyone, but reduces the tax breaks at the top, for a new revenue total of $1.2 trillion over ten years, and cuts spending by $930 billion, plus another $290 billion in debt interest savings.  Some of the savings are highly controversial among Democrats (see below).  If a solution is to be found, either before or soon after the beginning of the new year, it appears less likely to be achieved by legislation that can draw majority Republican support in the House.  Another option – passing a plan in the House with bipartisan support (lots of Democrats and some Republicans.  It remains to be seen whether Speaker Boehner will exercise leadership in pressing for that, or leave it to others to work around him.  In announcing the House’s departure, the Speaker did not seem to be signing up for a renewed battle to win over his caucus.  Instead, he said “Now it is up to the president to work with Sen. Reid on legislation to avert the fiscal cliff.”

Taxes

Taxes were a major issue during the Presidential campaign with a focus on the ’01 and ’03 Bush-era income tax rates set to expire at the end of this year.  On November 14, newly off an election victory where he campaigned for higher taxes on incomes over $250,000 and with opinion polls solidly favoring his position, the President at his first post-election news conference reiterated his position on income tax rates and pressed for $1.6 trillion in revenue as part of a comprehensive deficit reduction deal.  Democrats were buoyed by the President’s approach.  Republicans had strongly resisted any increase in personal income tax rates but some conceded that the election results would likely mean rates for high-income taxpayers would go up.  Others pressed for no rate increases and instead talked in vague terms about tax reform that included closing unspecified tax loopholes and ending some tax deductions.  In return they also wanted deep cuts in spending.

The President presented a more detailed deficit reduction plan on November 29, outlining nearly $1.6 trillion in addition tax revenue over 10 years.   Tax rates for income of less than $250,000 would remain the same while the two top rates of 33 and 35 percent would revert back to 36 and 39.6 percent; the rate on capital gains would increase from 15 percent to 20 percent and dividends from 15 percent to the ordinary income tax rate; the maximum value of tax deductions would be lowered to 28 percent (someone in the 35 percent tax bracket can currently deduct up to 35 cents for every dollar in deductions) and additional limits would be placed on itemized deductions for higher-income taxpayers; and the estate tax would revert back from its current $5 million exemption level and maximum rate of 35 percent to its 2009 exemption level of $3.5 million and 45 percent maximum rate .  The tax package would also continue the expansions made in the 2009 economic recovery act to the refundable Child Tax Credit and Earned Income Tax Credit (EITC) for low-income working families; extend for one year the 2 percent payroll tax cut for individuals; provide a one-year fix to the Alternative Minimum Tax (ATM), keeping new taxpayers from being hit with an average income tax increase of $2,250 according to the Tax Policy Center; and extend a number of business tax breaks.

In response to the President’s plan Speaker Boehner, the Republicans’ lead negotiator in deficit reduction talks with the President, offered $800 billion in revenue through limiting tax expenditures in tax reform that would occur next year.  His plan did not specify which tax expenditures would be limited.  Many of the most costly expenditures in terms of lost revenue are very popular and have powerful lobby shops supporting them, for example the home mortgage interest deduction, making them politically difficult to reduce significantly.

Under earlier House Republican tax proposals and plans proposed by Speaker Boehner, the 2009 improvements in the Child Tax Credit and EITC would be allowed to expire.  This means that 12 million families benefiting from the Child Tax Credit would see their taxes go up by $800, on average.  Six million families would pay an average $500 tax increase because of cuts to the EITC.

In early December deficit reduction talks between Speaker Boehner and the President continued.  On December 17, the President presented a new proposal containing both new savings on the spending side and a reduction in revenue.  The proposal reduced revenue by increasing from $250,000 to $400,000 the income threshold at which the lower tax rates would be extended.   The 33 percent income tax rate would be extended rather than reverting back to 36 percent.

Speaker Boehner seemed to be making a significant move toward the President on revenue when he indicated that he would let tax rates on income over $1 million expire.  However, coupled with extending the Bush-era tax rates on income up to $1 million, extending limits on certain tax deductions set to end on January 1, taxing dividends at 20 percent rather than at the rate of regular income, and continuing the current generous estate tax provisions, people with incomes of over $1 million would receive an average tax cut of $108,500 according to the Tax Policy Center.

In a high-risk strategy Speaker Boehner decided to take this so-called “Plan B” to floor of the House for a vote on December 20.  When conservative Republicans revolted, Speaker Boehner pulled the bill knowing that it would not pass.  It is not yet clear what the impact of his failure to pass the bill will have on future talks with the President.  Democrats and the White House are urging him to return to the negotiating table with the President.

See Citizens for Tax Justice report from December 20 comparing Speaker Boehner’s “Plan B” and the President’s original and December 17 proposals at: http://www.ctj.org/pdf/latestfiscalcliff.pdf.

The Real Cliff:  Unemployment Insurance About to Expire, Leaving 2 Million With No Help

The House spectacle before the abrupt departure was remarkable both in showing what the majority wanted to do and what it didn’t care to tackle.  Although 4 in 10 of the unemployed today have been out of work for more than six months (most for more than a year), and have run out of state unemployment benefits, the House took no action to continue the federal Emergency Unemployment Compensation program for the long-term jobless.  It will expire at the end of December.  Two million will be denied unemployment benefits right away, followed by another million by the end of the March in 2013.  The proportion of the long-term unemployed has risen dramatically over the years.  After the 1980’s recession, 26 percent of the unemployed were out of work six months or more.  The President’s plan includes the extension of unemployment benefits for a year, at a cost of $33 billion.

Shrinking the Adjustment for Inflation:  “The Chained CPI”

One of the most controversial provisions in President Obama’s deficit reduction package is a change in the way the Consumer Price Index (CPI) would be calculated for purposes of calculating benefits for Social Security, and also affecting many other low-income programs that rely on annual inflation adjustments for eligibility or benefit levels.  In what ultimately turned out to be abortive negotiations with Speaker Boehner, the President responded to the demand that benefits to entitlement programs be cut by agreeing to this change, which is called the “chained CPI.”  It reduces the inflation rate by assuming that when certain prices go up, consumers are likely to switch to other comparable but cheaper products.  Some research questions whether the elderly, or low-income people generally are able to make such substitutions as easily as the population as a whole.  According to the Center for Economic and Policy Research, after 10 years, the Chained CPI would result in a 3 percent cut in Social Security benefits, about 6 percent after 20 years, and nearly 9 percent after 30 years.  For an average worker retiring at 65, this reduced measure of inflation would result in benefits being cut $1,130 a year at age 85.  Women would be disproportionately affected, because they live longer and are more likely to be poor.  The Administration’s Chained CPI proposal, which is estimated to save $130 billion over 10 years, does provide exemptions for low-income elderly and disabled making use of Supplemental Security Income (SSI), but that alone does not offer adequate protection to low-income people.  If the revised calculation is applied to the federal poverty guidelines, it will lower the annual increases in the poverty line, which would be likely to reduce benefits or shrink eligibility for means-tested programs.  Many progressive groups, including labor, have strenuously opposed making use of the Chained CPI.

SNAP in Farm Bill and House Bill 

Prospects for a 5-year reauthorization of a farm bill including the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) before this Congress ends on January 2 has all but disappeared. There is not time for action on a separate bill and prospects for attaching it to the elusive larger deficit reduction package are fading.  The full Senate passed a 5- year farm bill extension in June with $23 billion in savings over 10 years, including $4.5 billion in cuts to SNAP.  In July the House Agriculture Committee approved bipartisan farm bill legislation with $35 billion in savings over 10 years, including $16 billion in cuts to SNAP.  The House Republican leadership has refused to allow a floor vote to happen because some Republicans want deeper cuts to SNAP while many Democrats do not support any cuts to the program.  The commodities provisions in the two bills that subsidize farmers also split members, more along geographic than party lines.  The Senate bill tends to favor northern commodities like corn and soybeans and the House bill rice, peanuts and wheat grown in the southern states.

Absent a full reauthorization, there is faint hope that a shorter-term extension of the current farm bill might pass.  The SNAP program will continue to operate uninterrupted without an extension of the full bill because the rules governing the program will not expire and funding was included in the continuing resolution through March 2013.  However, some programs would be affected.  Dairy subsidies would revert back to a 1949 law, likely doubling milk prices.  Dairy products are a large portion of the Women, Infants and Children (WIC) federally-funded nutrition program, and the price increase would lessen the buying power of WIC recipients.

The Spending Reduction Act passed by the House on Thursday night included $32.3 billion in cuts to SNAP/food stamps.  The House majority would return SNAP benefits to their old level of about $1.30 per meal, an amount judged by nutrition experts to be inadequate.  While current law would have started that reduction in November of 2013, this bill moves it up to February.  Recent analysis estimates that this cut will result in a loss of $8 – $10 per person per month.  The House will also deny SNAP to 2 million people who now get benefits because their low incomes qualify them for programs such as Temporary Assistance for Needy Families.  This change will also result in 280,000 low-income children losing free school meals.  In addition, the House agreed to make it harder to streamline eligibility for SNAP benefits, which now can be received without additional documentation if certain households already qualify for Temporary Assistance for Needy Families (expected to cut assistance to 1.8 million individuals).  This change will also result in 280,000 low-income children losing free school meals.  These restrictions were estimated last spring to save $11.7 billion over 10 years.  Further, this bill would reduce SNAP benefits to people who now receive a small benefit from the Low Income Home Energy Assistance Program, said last spring to reduce SNAP spending by over $14 billion.  Despite this time of high unemployment, the House would drop certain federal spending for SNAP employment and training programs (saving about $3.1 billion over 10 years) and would end federal bonus payments to states to encourage good performance in administering SNAP.

Health Care Spending Reductions

The President’s most recent offer calls for $400 billion in savings in health care programs over 10 years, said to come mainly from Medicare, with relatively little from Medicaid (although details were not available).  The House Spending Reduction Act keeps the $16 billion in Medicare cuts scheduled to take place as part of the automatic FY 2013 cuts imposed by the Budget Control Act ( 2011 legislation that set up the “sequestration” cuts to start in January 2013 if Congress could not agree on a deficit reduction plan).  In addition, the House bill slashes health care premium subsidies under the Affordable Care Act for 350,000 people, and cut Medicaid funding to Puerto Rico and other territories even though Puerto Rico, despite its disproportionate poverty, receives far lower federal Medicaid payments than any state (a high of 35 percent in 2010; states receive no less than 50 percent of Medicaid costs).  The amendment also allows states to make cuts in their Medicaid programs below the levels in place when the Affordable Care Act passed, which could reduce eligibility or benefits for millions of people.  Further, it includes a number of funding cuts aimed at undermining the Affordable Care Act (the major new health care legislation now being implemented).  These savings are estimated at $47.3 billion over ten years by the Congressional Budget Office.

The President’s plan is said to assume at least one-year funding for continued higher payment levels to physicians under Medicare.  Their payments were supposed to be cut by Sustainable Growth Rate (SGR) reductions passed by Congress some years ago, but Congress has not been willing to implement these cuts.

Debt Ceiling

President Obama has been emphatic in not wanting to undergo another crisis negotiation in which Republicans insist on spending reductions commensurate with increases in the debt ceiling.  The debt ceiling is expected to be reached within the next month or two.  If Congress does not authorize continued borrowing, the crisis would stall spending, spook federal bond-holders, with threats of catastrophe for our economy, according to people like Federal Reserve Chair Ben Bernanke.  Holding spending on domestic priorities hostage to deeper and deeper cuts to get the debt ceiling increased would be very dangerous to human needs programs.  Obama’s position initially would have reduced Congress’ role in debt ceiling increases permanently; more recent proposals have called for a two-year debt ceiling increase.

Appropriations

The President’s most recent offer called for cuts of $100 billion to defense and $100 billion to non-defense appropriations over 10 years, beyond the $1.5 trillion in cuts to these programs already set in motion over the next decade.  These cuts are much lower than the approximately $1 trillion in additional Pentagon, domestic, and international program cuts that are now scheduled to start in January and continue over 10 years.  Still, domestic appropriations are being cut deeply already, affecting education, housing, child care, WIC, Head Start, home energy assistance, and much more, and many groups oppose any further cuts.  On the other hand, many military spending experts believe that much more could be cut from military spending than the $100 billion called for in the President’s plan.

As noted above, the House spending reduction bill cuts appropriations by another $19.1 billion in FY 2013 by lowering the appropriations cap by that amount.  The bill also prohibits further military cuts.

The post CHN: The House Goes Home for Christmas appeared first on Coalition on Human Needs.

There was an outside chance that Congress would be able to agree on a full-year appropriations bill during the waning days of its session.  For parents needing help with child care or placing their children in Head Start, the outcome was very important.  These programs are facing a significant loss of funding as the temporary increase provided by economic recovery legislation expires.  An omnibus spending bill proposed by the Senate Appropriations Committee would have mitigated the loss of the temporary funding by increasing child care base dollars by $681 million and Head Start by $840 million over their FY 2010 levels.

But hopes for that were dashed when Senate Republicans who had participated in negotiations for the omnibus spending bill backed away from their initial support.  The omnibus, with individual line items for all annual appropriations, was shelved.  Republicans, who will control the House of Representatives and be more influential in the Senate starting in January, decided to unite around delaying full-year decisions until after the new Congress is seated.

Without the necessary 60 votes to pass the omnibus bill, Senate Appropriations Committee Chair Daniel Inouye (D-HI) introduced a short-term continuing resolution (CR) instead, which would fund federal programs through March 4.  The Senate took up this bill on December 21, the day that the previous stop-gap spending bill was to expire.  The Senate voted for the temporary spending measure (a Senate amendment to H.R. 3082) by a convincing vote of 79-16, and sent it to the House for final enactment.  In the evening, the House obliged, with a vote of 193-165, sending it to the President for his signature and preventing a government shutdown.   House Members used this final debate as an opportunity to celebrate the historic career of David Obey (D-WI), the retiring Chair of the House Appropriations Committee.  Chairman Obey has served in the House since 1969, and is the third longest-serving Member in the House.

The expected House leadership once the new Congress is seated has proposed funding levels substantially below current spending for domestic programs including housing, education/training, children’s services, public health, home energy assistance, and much more.  They will get the chance to propose spending cuts when Congress has to extend funding before the March 4 deadline.

In this year of logjam, Congress had not enacted any of the dozen separate appropriations bills in time for the beginning of the fiscal year on October 1.  Instead, they passed temporary continuing resolutions.  That left three options for closing out the year:  (1) passing an omnibus bill, with complete funding decisions for each program; (2) passing another continuing resolution through the end of the fiscal year, with programs flat-funded except for a small number of programs where flat-funding would have bad consequences unacceptable to Congress; and (3) passing a short-term continuing resolution.  By taking the third option, Congress has greatly increased the likelihood of significant cuts in human needs programs.

All of the spending proposals being floated in Congress are lower than President Obama’s FY 2011 budget plan.  Here is a rough summary of appropriations totals (both domestic and military/international) in the proposals Congress has considered or will in the near future:

                        President’s FY 2011 budget: $1.137T
Senate omnibus bill:                $1.108T
House full-year CR:                 $1.089T
Senate CR till March 4
(at full-year rate):                    $1.091T
Boehner proposal (expected
new House Speaker):            $1.029T

The Boehner proposal is $62 billion less than the annualized rate of spending in the short-term continuing resolution, and about $108 billion less than the President’s earlier proposal.  Even worse, the Boehner plan accepts the President’s funding for military, homeland security, and veterans’ programs, inflicting all the cuts in domestic spending.  An analysis by the Center on Budget and Policy Priorities estimates that the Boehner plan will require an immediate 21 percent across-the-board cut in domestic programs, “the deepest cut for these programs from one year to the next in recent U.S. history.”

The short-term continuing resolution just enacted includes a few increases beyond level-funding.  For example, the bill makes up a $5.7 billion shortfall in funding for Pell grants, to ensure that the maximum annual grant per student is not reduced from its current $5,550 amount.  An increase of $460 million was provided for the Veterans Benefits Administration, to keep up with the large number of war-related disability claims.  There are also some proposed increases in military spending.  But the increases in child care and Head Start have been wiped out.  Similarly, the omnibus had funding for 10,000 rental vouchers and other assistance for homeless families and individuals, whose numbers have grown since the housing bust and the recession.  The omnibus provided $830 million in new funds to process disability and retirement claims through the Social Security Administration to prevent long waits due to the rising number of claims.  These modest increases do not appear to be included in the March 4 CR.  Neither is about $1 billion in additional funding for the Centers for Medicare and Medicaid Services (CMS), much of which would have been used towards implementing the new health care law.  While omitting this funding does not really prohibit the Administration from moving ahead with implementing the law (most of the health care law’s funding is mandatory and not subject to Congressional appropriation), it may slow the process down somewhat.

Because the CR avoids most item-by-item appropriating, it also fails to achieve $10.2 billion in savings from military programs that the omnibus would have cut.  These savings are not therefore available to be invested in other services.

If the new Congress replaces the short-term measure with something like the Boehner plan, it will have to cut domestic spending by more than $100 billion, (the 21 percent mentioned above).  The cuts would apply to programs that have been operating since October 1, and so would be far worse because they could not be spread over a full 12 months.  Cuts of this magnitude will hurt the fragile economic recovery, and will invite strong opposition.  As President Obama charts his course in working with a more hostile Congress, advocates will be looking for his use of every Presidential tool to fight off severe cuts, up to and including veto threats.

The post CHN: Senate Attempt at Full-Year Appropriations Collapses appeared first on Coalition on Human Needs.

The McCrery plan and a similar proposal by Senator DeMint (S.1302) are acknowledged by their sponsors really to be a first step in a more extensive effort to privatize Social Security. Senator DeMint has been quoted as saying, “Our whole intention is to come back and add reform on top of this — at least [my intention] — is for larger accounts, a permanent solution.”

As the DeMint plans does not appear to have good prospects of passing the Senate or, for that matter, even the Senate Finance Committee, pro-privatization Republicans are turning hopeful eyes towards the McCrery legislation in the House. It is expected to be bundled together with pension reform legislation recently passed out of the Education and Workforce Committee and other legislation into a broad “retirement bill” that Ways and Means Chairman Bill Thomas (R-CA) hopes to craft sometime after the August recess. Senator Charles Grassley (R-IA) has met with Republican members of his Finance Committee 15 times to discuss Social Security and still has not been able to find a majority needed to pass legislation out of his committee.

The McCrery-DeMint plan makes no attempt to bring solvency to the Social Security program, which was the stated goal of overhauling Social Security when President Bush began his tour around the country to promote private accounts. It appears that many Republican leaders are moving toward the idea that a proposal without “pain” is needed to establish private accounts and then create some political pressure for future expansions and further privatization. Rep. Thomas had earlier said that solvency would be addressed in the broad bill he’s planning to craft in the Ways and Means Committee, but he recently agreed with proponents of the McCrery plan that the legislation did not have to include the “pain” of tax increases or benefit cuts needed to enhance solvency.

Where the White House stands on creating private accounts without addressing solvency is somewhat unclear. White House National Economic Council Director Allan Hubbard seemed at least partly to endorse the strategy of the House Republicans last week when he called the McCrery plan “a very important first step.” However, Ben S. Bernanke, the new chairman of Bush’s Council of Economic Advisers, told reporters Monday that solvency provisions had to be part of any Social Security legislation to receive White House support.

Pro-privatization members of Congress intend to promote the McCrery-DeMint plans during the August recess. Those fighting to protect Social Security are planning several activities during August to counter the privatization offensive, including a Congressional call-in day on August 1 and events to celebrate the 70th anniversary of Social Security on the weekend of August 13-14.

The post CHN: Privatizers Attempt Trojan Horse Legislation in the House appeared first on Coalition on Human Needs.

Opponents of privatization quickly pointed out that those surpluses are already accounted for — they are directed to the Social Security trust funds to be used to pay benefits when the baby-boomers retire in large numbers. Critics also point out that this plan relies on accounting gimmicks and massive transfers of funds from general revenues to prevent greater shortfalls in the program. According to Social Security actuaries, the proposal would increase the national debt by more than a trillion dollars during the first 10 years it is in effect. The measure still contains a core idea of privatization — guaranteed benefits would be cut in return for a private account that may or may not perform as hoped.

The plan is reportedly popular among some House members, many of whom may promote it during the July 4th recess, but it is not clear that the entire House GOP is in agreement. Ways and Means Chairman Bill Thomas (R-CA) has recently stated that the broader retirement measure he is planning to introduce will, in fact, address the solvency of Social Security as well as create of private accounts.

A very similar bill has been introduced in the Senate by Jim DeMint (R-SC) but support in that chamber is less certain. Senate Finance Committee Chairman Charles Grassley (R-IA) seems to be struggling to get agreement even among the Republicans on his committee to support any Social Security legislation. He has stated publicly that a measure creating private accounts probably cannot pass his committee at this time but claims to have a “rough consensus” on a measure to improve solvency. Two Finance Committee Republicans, Olympia Snowe (R-ME) and Craig Thomas (R-WY) have said they will not support legislation if it includes private accounts while another, Jon Kyl (R-AZ) said he will oppose any legislation that does not include private accounts. It is possible that the DeMint legislation could be brought directly to the floor of the Senate, bypassing the Finance Committee.

To see the CHN Social Security Update on the DeMint McCrery plans, visit http://www.chn.org/dia/organizations/chn/issues/socialsecurity/ssupdate050701.html *** PAGE NOT FOUND

The post CHN: GOP Present New Plan; Critics Call it More of the Same appeared first on Coalition on Human Needs.

Finance Committee members Sen. Olympia Snowe (ME) opposes private accounts as described by the President, and her colleague Sen. Craig Thomas (R-WY) opposes the President’s proposal on fiscal grounds. All of the Democrats on the committee are united in opposition. As a result, Grassley has begun to negotiate proposals that would improve the program’s solvency, while leaving the more explosive issue of private accounts for later.

Some measures being considered include raising the amount of income that can be taxed under Social Security, reducing benefits for wealthier recipients, and raising the retirement age. Conservative Republicans are hostile to raising the amount of income taxed, while raising the retirement age is criticized by experts who say it would unfairly hurt people in strenuous physical labor occupations or people who find it difficult to obtain employment in old age.

Meanwhile, a very different strategy is being implemented in the House. Rep. Bill Thomas (R-CA), chairman of the Ways and Means Committee, is considering attaching a raft of tax provisions related to retirement savings and other “sweeteners” to a Social Security bill creating private accounts.

As the Center on Budget and Policy has pointed out, many of these provisions would benefit primarily the wealthy (and more than compensate the wealthy for the cuts to their benefits under the President’s proposal) while doing little or nothing to help middle- and lower-income people.

For example, Chairman Thomas is considering:

- Eliminating the income limits on Roth IRAs, currently $160,000 for married filers and

$110,000 for single filers. This would do nothing to help those with incomes lower than those levels and would cost a great deal of revenue in the future, when these higher-income people retire and withdraw funds tax-free. The Congressional Research Service found this could cost $9 billion a year after two decades, and experts at the Brookings Institution caution that this could cause some business owners who are currently themselves ineligible for IRAs to eliminate their employee pension plan, causing a reduction in pension coverage for the typical worker.

- Raising the contribution limits for IRAs and 401(k)s. These limits are now set at $5,000 for IRAs and $15,000 for 401(k)s and are higher for those 50 and older. Currently, only 5 percent of workers contribute the full amount allowed. Only 1 percent of those earning less than $40,000 did so in 1997, according to the Congressional Budget Office. This would therefore simply result in wealthier workers shifting money from taxable accounts to non-taxable accounts, costing massive amounts of revenue while only helping the well-off. In addition this measure could also cause a reduction in employer-sponsored pension coverage.

- Creating tax-free health savings accounts. These would violate what until now has been a principle of retirement savings policy: that a tax shelter can allow for tax-deductible contributions, OR tax-free withdrawals, but not BOTH. A major problem with this type of proposal is that some low-income people do not pay federal income taxes and therefore cannot benefit. Those who do are subject to lower tax rates than the wealthy, meaning the deductions provide a much larger tax break to the wealthy than low- or middle-income people.

- Other provisions being considered would be presented as measures to strengthen and support employer-provided pensions. Shoring up pensions has assumed more urgency in the wake of the a court decision allowing United Airlines to default on its pension promises to 120,000 workers, who now must rely on the underfunded Pension Benefit Guaranty Corporation to guarantee at least a fraction of their retirement plans.

Also being discussed are certain measures that could truly help middle- and lower-income people save for retirement. Many of these are embodied in legislation proposed by Senators Gordon Smith (R-OR) and Kent Conrad (D-ND) that does not involve privatizing Social Security. Smith and Conrad’s legislation would:

- encourage employers to automatically enroll employees in 401(k)s and increase contributions, allowing employees to opt out if they choose;

- extend a tax credit passed in 2001 for retirement savings for those earnings less than $25,000 and that is currently scheduled to expire in 2006;

- facilitate electronic transfers of federal tax refunds directly into IRAs; and

- make a portion of annuity payments tax-free.

While Chairman Grassley attempts to prod action in the Senate and Chairman Thomas plans a full-scale charge in the House, other members of Congress have introduced their own ideas. For example, Senator Jim DeMint (R-SC) has proposed a plan that would create private accounts not by borrowing but by using the Social Security surplus (the excess taxes that are currently being paid into the system to build up the trust fund, which is supposed to be used to keep benefit payments at their scheduled level between 2017 and 2041). It is not clear what size the accounts would be or how other details would be worked out.

The DeMint proposal would seem to cause some awkwardness with other Republican members since it seems to give up the goal of solvency in favor of creating private accounts (whereas Grassley might be giving up the goal of private accounts in order to focus on solvency) and because it relies on using the Social Security trust funds which the President has already said do not actually exist. The argument that the surplus Social Security taxes do not or should not go into the trust fund would also seem to highlight the fact that the Bush Administration and Congress have been spending those surpluses for several years now.

In the midst of the confusion over what a Social Security plan in Congress might look like, the anti-privatization campaign has taken its message into areas that are typically thought to be friendly to the Bush Administration. Americans United to Protect Social Security is stepping up activities coordinated with people of faith, people in “red states” that voted for Bush in 2004, and individuals who voted Republican but who oppose the plan to partially privatize Social Security.

Democrats in Congress have reinforced these efforts by launching a Rural Social Security Coalition, which has released a report showing that rural counties depend on Social Security nearly twice as much as other counties.

The post CHN: Social Security Pro-Privatization Forces Divided on Strategy appeared first on Coalition on Human Needs.

While weathering these criticisms of his “progressive” proposal, the President this week felt a new blow to his campaign: Robert Pozen, the architect of “progressive price indexing” has turned against the other part of the President’s proposal — private accounts using money diverted from Social Security. According to Congressional Quarterly Today , Pozen said in an interview, “I would advise the President to say that carve-out accounts are no longer required” because they make passage of any bill seemingly impossible. The term “carve-out account” is applied to a private account that would, like that proposed by the President, be funded by money diverted from the payroll taxes that currently fund Social Security.

The President’s proposal includes diverting almost a third of a worker’s payroll tax away from Social Security and into private accounts. Pozen says, “The accounts are just too large” and that more revenue may need to be brought into the program ( http://www.nytimes.com/2005/05/20/politics/20social.html ?).

Meanwhile, the campaign to prevent the partial privatization of Social Security continues to pick up steam. Americans United to Protect Social Security have scheduled a “Take a Stand Campaign” beginning in the Memorial Week Recess to call upon members to state a position on Social Security ( http://www.americansforsocialsecurity.com/index.php?option=com_content&task=view&id=203&Itemid=1 ).

The post CHN: President Proposes Benefit Cuts That are Not Progressive; Plans’ Architect Turns Against Private Accounts appeared first on Coalition on Human Needs.

Because the resolution makes room for a total of $100 billion, Congress could pass at least another $30 billion in additional tax cuts outside the reconciliation process — although these would require 60 votes for passage in the Senate.

Because the reconciled tax cuts require just 51 votes in the Senate, it is likely the tax-writing committees will put the more controversial tax cuts in a reconciliation bill and save more popular, middle class tax cuts for separate legislation likely to attract 60 votes. To further complicate the tax picture, Chairman Thomas plans to develop a Social Security bill in his committee and has said he would like his bill to be a comprehensive retirement reform bill . Although nothing is certain yet, Chairman Thomas has expressed interest in developing a package of tax cuts revolving around savings plans to combine with Social Security “reform”.

The Cuts Being Contemplated

Some of the tax cuts being considered include:

•  Extending rate cuts already made to capital gains and dividends but which are due to expire in 2008. These tax breaks alone would give an average $38,000 per year to millionaires.

•  Fixing the alternative minimum tax (AMT) for one or more years. The AMT was originally designed to ensure well-off taxpayers pay at least some level of tax. Because it has not been adjusted over the years, increasing numbers of upper middle-class taxpayers are paying the AMT. Adjusting the AMT is a fairly popular tax cut and could probably garner more than 60 votes of support in the Senate.

•  Repealing the estate tax. Under current law, the estate tax will phase down until 2010, at which time it disappears completely. In 2011 it is scheduled to reappear at 2001 levels. In the past, the House has voted to fully repeal the estate tax, but so far it is not likely that 60 Senators are willing to vote for full repeal. The cost of full repeal is estimated to be $1 trillion over ten years. Because repealing the estate tax would be paid for with borrowed money, the $1 trillion cost includes interest on the increased federal debt. Several Senate Democrats and some Republicans are discussing the possibility of reducing – not repealing – the estate tax. The estate tax – dubbed by some the Paris Hilton tax – only affects the very wealthiest Americans.

•  Extending various expiring tax breaks for corporations, including a research and development tax breaks. This is a popular set of tax cuts that could probably get more than 60 votes in the Senate.

In addition, as part of a retirement / Social Security bill, Chairman Thomas may consider removing income limits on Roth IRAs, IRAs and 401k plans or making changes to Health Savings Accounts. These changes would be very expensive and would almost exclusively benefit the well-off. Middle and low-income tax payers would benefit very little, if at all, from changes such as these because they are already having a difficult time saving for retirement. Many low-income workers do not have access to a company 401(k) plan – and those who do tend not to be able to contribute the maximum amount, so lifting the ceiling would not help them.

Advocates are concerned that additional tax cuts add to the growing pile of debt and further shrink the capacity of government to provide medical care, improved nutrition, education, or other assistance that invests in people and communities.

The post CHN: Congress Ponders Multiple Tax Cuts appeared first on Coalition on Human Needs.

Not Progressive

The President has endorsed investment executive Robert Pozen’s idea of “progressive price indexing.” Under the current rules, the initial benefit a worker receives from Social Security rises with the average wage, so that Social Security can continue to replace a sizable percentage of wages as years go by and wages climb. This ensures that today’s retirees live at today’s living standards rather than the living standards of, say, forty years ago. “Progressive price indexing” calls for indexing the initial benefit of wealthier workers to prices, which rise more slowly than wages, and thus constitutes a cut in scheduled benefits. In theory, the poorest workers would continue to enjoy an initial benefit level indexed to the average wage, while middle-income workers would be subject to some blend of the two standards.

The President’s benefit cuts would apply to anyone earning over $20,000.
President Bush promised to shield lower-income people from the benefit cuts he says are necessary to put Social Security on better financial footing. In reality, cuts would apply to people making as little as $20,000 and the cuts faced by a middle-income worker would not be that different from the cuts faced by a millionaire.

The President’s benefit cuts would hit the middle-class harder than the wealthy.
If you compare the percentage of total retirement income a middle-income person loses under the Bush proposal to the total retirement income a wealthy person loses, it becomes clear that the cuts hit middle class the hardest. The projected cut in benefits for a middle wage earner (someone who earns $36,500 today) in 2080 is equal to 26.9 percent of her retirement income, while the implied cut for a maximum wage earner would be equal to just 11.9 percent of her retirement income.

The President’s benefit cuts apply to survivor benefits and might also apply to disability benefits.
The President was not clear about how how disability insurance beneficiaries would fare under his proposal. The Pozen plan cited by Bush uses cuts in benefits for survivors and disability beneficiaries for part of its savings. The President has suggested he would protect disability benefits, but if he does so, his plan will produce far less in savings than he promises. His savings goals will either require more benefit cuts, including applying them to people with disabilities or making deeper cuts to others, or increasing revenues. So far the President has resisted raising revenues.

Not Voluntary

The President’s benefit cuts apply regardless of whether or not you opted to have a private account.
The cuts in scheduled benefits that are termed “progressive price indexing” apply to beneficiaries regardless of whether or not they opt to have a private account. In addition, people who choose to have a private account are subject to a second cut in their guaranteed benefits in order to pay for it. The President attempted to underplay the nature of the cuts that would apply to everyone, saying “Americans who choose not to save in a personal account will still be able to count on a Social Security check equal or higher than the benefits of today’s seniors.” This is a misleading statement because under the current rules, the benefits of future retirees are already scheduled to be much higher than benefits of today’s seniors due to wage indexing as explained above. Even if your initial benefit was subject entirely to price indexing (which would be a drastic cut compared to scheduled benefits under current law) you would have a greater benefit in nominal dollars (not adjusted for inflation) than today’s seniors.

Not Necessary

The President’s Social Security benefit cuts are worse for many people than they would be if Congress took no action at all.
Social Security benefits are scheduled to rise to keep up with our living standards. However, the Social Security trustees have projected a shortfall that will result in the program being able to pay only 74 percent of scheduled benefits in 2041. Because of the scheduled increases (known as wage indexing, as explained above) even these reduced benefits will be greater than what people receive today. The Congressional Budget Office, using assumptions more consistent with economic history, has projected this shortfall to occur in 2052. We cannot be at all certain of economic projections so far into the future. But no matter what size the funding gap is, there is no reason we should rely solely on benefit cuts to close it. President Bush wants to rely on benefit cuts alone to close the projected shortfall, instead of using a mix of revenue measures and benefits changes, as did the 1983 Social Security reforms led by Alan Greenspan. As a result, the President’s plan requires many workers to have even lower benefits than they would receive under the current rules if we made no changes whatsoever.

The Bottom Line

The Coalition on Human Needs supports policies that prevent poverty in old age and poverty caused by the disability or death of a breadwinner. Cutting Social Security for anyone who makes over $20,000 and diverting funds into risky private accounts is not such a policy. The President is proposing drastic changes that would endanger retirement security for people of relatively modest means. These changes, if enacted, would not be voluntary, progressive, or necessary.

Learn More

Visit the the CHN Social Security page at http://www.chn.org/dia/organizations/chn/issues  /socialsecurity/. *** Need Correct Link Here***

=> Back to Social Security Main Page

The post CHN: The President’s Proposed Benefit Cuts: Not Progressive, Not Voluntary, Not Necessary appeared first on Coalition on Human Needs.