The last major comprehensive federal tax reform legislation was passed in 1986.  Since then, the federal tax code has been filled with changes making it more complicated and, for individuals and corporations who can afford tax lawyers, easier to find legal ways to avoid paying taxes.  Chairmen of both the House and Senate tax-writing committees say they are preparing to introduce major tax reform bills this year.  To emphasize their point, Senate Finance Committee Chairman Senator Max Baucus (D-MT) and House Ways and Means Committee Chairman Representative Dave Camp (R-MI) embarked on a joint tax reform tour.  The first stop was on July 8 in Minneapolis to seek ideas from large businesses.  The focus of their July 29 trip to Philadelphia was to talk with small businesses.  The tour followed months of meetings with committee members and staff discussing various options for tax reform.  Both chairmen are determined to forward legislation during their remaining time in the driver’s seat – at the end of 2014 Senator Baucus will retire and Representative Camp’s tenure as Ways and Means chairman will end.  Enacting reform will be a heavy lift, and advocates are concerned about the nature of tax reform under their leadership.

While in past decades tax reform plans have been designed to be revenue-neutral (that is, any revenues gained by eliminating tax loopholes would be plowed back into other tax reductions), that is far more problematic at a time when deficit reduction legislation has initiated ten years of cuts in government programs and investments.  Since 2011 Congress has enacted nearly $2.8 trillion in deficit reduction, including interest savings.  The ratio of spending cuts to revenue increases has been approximately 3:1.

Many economists and advocates including the Coalition on Human Needs believe that tax reform should result in more revenues and should be at least as progressive as the current system.  That is also the view of Senate Majority Leader Harry Reid (D-NV) and others in the Democratic leadership.  President Obama’s FY 2014 budget proposed to raise $851 billion in revenue over 10 years from individuals, but has in the past supported corporate tax changes that do not result in increased revenues.  In a modest departure from his stance on corporate taxation, the President on July 31 called for investing short-term revenue increases from his corporate plan in job creation initiatives.  Most Republicans in Congress either want revenue-neutral tax reform or favor additional tax cuts.

Corporate Tax Reform

In the 1950s and ’60s U.S. corporations’ share of federal revenue collected averaged over 20 percent annually.  According to a Citizens for Tax Justice presentation, corporations are projected to contribute only about 10 percent of federal revenues in 2013.  This precipitous drop has occurred despite soaring corporate profits but has not prevented complaints by corporations that their tax rate is too high, making them less competitive in the global market. Regarding the U.S. corporate tax rate, the highest statutory rate  is 35 percent. However, the effective rate (the amount actually paid as a proportion of income after credits, deductions, and other loopholes are exploited) is significantly less.  According to a Government Accounting Office report, in tax year 2010 the average effective rate for profitable U.S. corporations was 12.6 percent, increasing to 16.6 percent when foreign, state and local income taxes are included.

Many large U.S.-based multinational corporations avoid paying taxes by parking their profits offshore in countries known as tax havens (places with very low or no taxes).  In so doing they avoid paying taxes until or unless those profits are brought back to the United States.  A newly-released report from U.S. PIRG (the federation of state Public Interest Research Groups) documents the extensive use of offshore tax havens by the top 100 U.S. publicly traded companies.  They have a total of approximately $1.17 trillion sheltered in foreign countries that are known tax havens.  Two-thirds, or $776 billion, is stashed away by 15 companies – General Electric, Apple, Pfizer, Microsoft, Merck, Johnson & Johnson, I.B.M., Exxon Mobil, Citigroup, Cisco Systems, Abbott Laboratories, Procter & Gamble, Hewlett-Packard, Google and Pepsi Co.  The companies often set up shell subsidiaries in the haven countries with few employees, if any, and little or no business activity.  Of the top 100 companies, 21 reported what they would expect to pay in U.S. taxes if they did not keep the profits offshore.  Collectively they would owe over $93 billion in additional federal taxes.  Repealing the rule that allows corporations to defer paying taxes on their profits could raise approximately $600 billion over ten years.

There are also significant cross-cutting breaks that apply to both multinational and domestic companies in the tax code.  One of the largest is the ability of companies to deduct from their taxable income capital investments (in equipment, software, buildings…) at a rate more quickly than the items wear out.  In addition, some sectors of the economy benefit from subsidies particular to that industry.  Often mentioned are the subsidies for oil and gas companies.  Citizens for Tax Justice has a report outlining policy options to raise more revenue by closing tax loopholes and reducing subsidies that benefit companies.

Individual Tax Reform

In 2001, President Bush proposed and Congress agreed to the Economic Growth and Tax Relief Reconciliation Act, which reduced income tax rates for most taxpayers by a few points and created a new 10 percent bracket. The American Taxpayer Relief Act of 2012 made permanent the rate reductions for every tax bracket except the top rate of 35 percent, which it returned to its pre-2001 level of 39.6 percent.  (Income over $450,000 is subject to the highest rate.)  The result was estimated as a $600 billion tax increase over 10 years.  This represents the first contribution revenues made to deficit reduction during the current economic recovery.  By historic standards the top rate is still low; it has been over 60 percent for more than half the time since the income tax was adopted a century ago.

The tax code is filled with tax expenditures (subsidies provided through the tax code).  These tax breaks lose approximately the same amount of annual revenue ($1.3 trillion) as is brought into the Treasury through personal income taxes.  There are expenditures on both the corporate and individual side of the tax code, but the bulk of them are on the individual side in the form of exclusions (an item not taxed), deductions (a reduction in income not subject to tax) or credits (a sum deducted from the total amount of tax owed).  The largest tax expenditures for individual taxpayers include the exclusion of employer-sponsored health insurance, preferential rates on capital gains and dividends, the exclusion of pension contributions and earnings, the exclusion for state and local taxes, and the deduction for mortgage interest.  As Congress looks at tax reform, Citizens for Tax Justice suggests that it should evaluate whether the expenditure should be repealed, reformed or preserved based on three criteria: cost, progressivity and effectiveness in achieving policy goals, such as subsidizing home ownership, encouraging charitable giving, or encouraging work.

Advocates believe that one of the expenditures hardest to justify and most expensive (a predicted $161 billion in lost revenue in 2013) is the lower tax rate on capital gains (profits made from selling assets above their purchase price) and dividends.   The richest one percent of taxpayers receives 68 percent of the benefit from this expenditure and the richest five percent receive 82 percent of the benefit.  While the maximum tax rate for earnings is 39.6 percent, the tax rate for capital gains and dividends is capped at 20 percent.

For more detail on reforming individual income tax expenditures see the Citizens for Tax Justice report.

Low-Income Tax Credits

Top priorities for advocates in tax reform is preserving the refundable Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the American Opportunity Tax Credit.  A refundable tax credit is one that results in a “refund check” payment even if the credit exceeds what a person or family owes in taxes. The EITC is calculated on a sliding scale, with the maximum credit of $5,372 available for  a family with two children in 2013 with earnings up to approximately $18,000; the credit then gradually decreases as earnings rise, and phases out for married couples at a little over $48,000.  The EITC is considered the most beneficial anti-poverty program in the federal government, lifting millions out of poverty.  The CTC is partially refundable for low-income working families up to the maximum of $1,000 per child.  The American Opportunity Tax Credit helps students and their families pay for college, and is also refundable.

Senate

After multiple Finance Committee hearings, bipartisan meetings with members and staff, and numerous option papers over the last few years, Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter to all members on June 27 asking for their feedback starting with a “blank slate” approach – that is, a tax code without all of the tax expenditures – asking them to make the case for retaining, eliminating, or changing them in the code.  Most important to advocates is that the letter calls for “maintaining the current level of progressivity” in the tax code.  A footnote in the letter says, “The current level of progressivity means the level of progressivity in 2017.  Certain tax expenditures are excluded from the analysis where doing so is necessary to maintain the current level of progressivity.” This is especially important because it essentially assumes that improvements to the refundable credits including EITC and CTC which were extended through 2017 will continue in any tax reform plan.

The letter has been met with mixed reviews. Some members have responded by the July 26 deadline with letters to the chairman and ranking member that talk mostly about principles that should be adhered to in tax reform.  Others discuss specific provisions in the code that should be retained.  Initially some members expressed concern about whether the letters would remain secret.  Some decided to make their letters public themselves.

Leader Harry Reid (D-NV) has said that ‘significant’ revenue must be generated from both the corporate and individual sides of the tax code, and has questioned the value of tax reform plans that do not start with an agreed-upon goal of increased revenue.  The third ranking Democratic leader, Senator Charles Schumer (D- NY), and other Democrats say that the process should result in $975 billion in net revenue over 10 years, the amount they voted for in the Senate-passed budget resolution earlier this year.  Chairman Baucus voted against that budget resolution.  Senator Hatch and many Republicans say tax reform must be budget-neutral.

House

Similar to the Senate, the House Ways and Means Committee has been working on a bipartisan basis to discuss and analyze proposals to reform the corporate and individual tax codes.  Ways and Means Chairman David Camp (R-MI) says that the end result should not raise more revenue.  In a recent meeting with members of the Committee, the Chairman said he plans to bring a bill to the Committee this fall that follows the framework of the tax plan in this year’s House-passed budget.  The plan would reduce the 7 brackets in the individual code to two – 10 and 25 percent – and would drop the top corporate rate from 35 to 25 percent.  In July 30 letters to Ways and Means Ranking Member Sander Levin (D-MI), the Joint Committee on Taxation (JCT) scored the 10-year cost of lowering the rates to 25 percent at a cost of $5 trillion in lost revenue over 10 years.  Chairman Camp will press JCT to use a scoring method speculates about the impact on the economy of lowering the rates.  This so-called ‘dynamic’ scoring method has not been used to make such projections because it is not possible to reliably estimate the effect that the changes would have.    Although the House budget plan claimed to be revenue-neutral, an analysis of a similar plan by the Brookings-Urban Institute Tax Policy Center found that the only way that could be achieved would be by shifting the tax burden massively from upper-income to low- and middle-class taxpayers.

President

The President, in a July 31 speech in Tennessee attempting to re-focus the nation and Congress on job creation, called for a corporate tax plan that would lower the corporate tax rate to 28 percent, while closing loopholes and creating one-time savings that he proposed to invest in a short-term job creation package. His proposal does not spell out enough offsets on the corporate side of the ledger to pay for the rate reduction.  Advocates are concerned that support for lowering corporate tax rates without any agreement in Congress for a plan to raise revenues and to invest in job creation will ultimately make revenue losses more likely.

During his presidential run, former Governor Mitt Romney revealed that his federal tax liability was less than 14 percent.  More recently a much-publicized Senate investigation exposed the techniques Apple uses to pay little in taxes by sheltering $102 billion in tax havens. Small businesses and moderate-income individuals who pay a higher effective tax rate than many wealthy individuals and large corporations resent the fact that the tax burden falls more heavily on them.  Their resentment seems to be shifting the debate in Washington about changes that should be made to make the tax system fairer.

Given the insistence of many Republicans that tax reform not increase revenue, and the stance of many Democrats that such a position is a non-starter, it is hard to see comprehensive tax reform becoming a reality anytime soon.

The post Tax Reform Primer: Differing Goals Make Action Elusive appeared first on Coalition on Human Needs.

Once upon a time, the House and Senate Appropriations Committees sent 12 separate spending bills to the floor of each body, after the full Congress agreed on the total funding they had to divide up.  Conference committees would resolve the differences, and bills would be enacted and sent to the President.  That was then.

This year, the House and Senate are $91 billion apart on their FY 2014 appropriations totals, with the House assuming that spending will not exceed the limits set by another year of sequestration cuts, and the Senate assuming sequestration will not take place.  The gap is made even larger by the fact that the House violates the Budget Control Act’s requirement that defense and “non-defense” are cut equally.  Instead, the House spares defense and cuts domestic programs more deeply.

On the House side, the domestic cuts are so deep that there may not be a majority to pass them.  That was the case when the House leadership had to pull the Transportation-Housing and Urban Development bill from the floor for lack of votes.  In the Senate, the leadership sought to bring big domestic bills to the floor, to show the funding they were willing to provide and contrast it with the deep cuts the House is making.  (See the July 22 Human Needs Report  for more detail about the Senate Transportation-HUD bill.)  However, while a large bipartisan majority in the Senate was at first willing to end debate on the Transportation-HUD spending bill, the bill was stymied later when only one Republican, Senator Susan Collins (R-ME) would join in voting to advance the bill towards final consideration on the floor.  So Congress left for its August recess with neither body able to pass the T-HUD bill.

While it was always a safe bet to assume that Congress would not be able to enact many individual appropriations bills, by the time Congress left town it seemed clear that they would be hard-pressed to pass any.  So in order to keep programs running after the October 1 beginning of FY 2014, Congress will have to agree upon a temporary spending measure, a.k.a. a Continuing Resolution, for as long as they choose, as they continue to work on spending choices for the rest of the fiscal year.

Ordinarily, that would not be too difficult.  Congress would continue spending with each program at this year’s level for a temporary period.  But this year, continuing at this year’s level would run afoul of the deficit reduction law (the Budget Control Act).  If Congress cannot agree on ways to stop the sequestration cuts by changing the law, it must appropriate about $20 billion less in FY 2014 than this year’s spending, and complying with the law means that the full $20 billion must be cut from defense (the domestic programs will have already taken their share of the hit).  That would not be very popular, but if Congress refused to make that cut or to enact changes in the Budget Control Act, the $20 billion Pentagon cut would be triggered automatically across each defense account 10 days after Congress adjourned at the end of 2013.

So Congress has to decide something before the end of 2013, at least if they want to avoid those Pentagon cuts.  And if they do not approve some form of spending bill by September 30, great swaths of federal programs will shut down – also not popular.   They don’t have much time to do it.  The House calendar for September includes only 9 days in session.  They will be out the week of September 23-27, and will return on the very last day of the fiscal year, September 30.

Forestalling the Crunch.  When Congress is at home in August, they will hear from constituents and gauge how much people object to the current sequester cuts and the additional ones looming for FY 2014.  Some, including House Appropriations Committee Chair Harold Rogers (R-KY), saw the failure to take up the Transportation-HUD bill as proof that sequestration has to go.  “With this action, the House has declined to proceed on the implementation of the very budget it adopted just three months ago. Thus, I believe that the House has made its choice: Sequestration — and its unrealistic and ill-conceived discretionary cuts — must be brought to an end,” Rogers said.  But for Rogers, the preferred approach would replace the appropriations cuts (also called cuts to “discretionary” programs) with cuts to mandatory programs such as SNAP/food stamps, Medicaid, Medicare, or Social Security.  The Transportation-HUD implosion did illuminate divisions among House Republicans.  Some of the most right-wing members are willing to make deep cuts in discretionary as well as mandatory programs, while other members are more supportive of funding programs (including the Pentagon). The Senate-passed budget resolution took a different approach, getting rid of most discretionary cuts by a combination of nearly a trillion dollars of new revenue over ten years plus some mandatory savings (generally attempting to avoid service reductions).  The President has also opposed achieving all the deficit reduction through domestic cuts, either discretionary or mandatory.

Out of this mix, it is hard to predict whether some may push so far in the direction of cuts that others simply cannot agree, leading to an impasse that forces a government shutdown.  Funding will stop for federal employees, nutrition aid, housing and home energy assistance, Head Start, education, environmental protection, public health, justice, children’s services, and many other areas.

Whether or not that occurs, some kind of temporary Continuing Resolution will probably pass.  If it keeps government going for about two months, the search for a longer-term solution will bump right into the next deadline to extend the U.S. Treasury’s authority to borrow (the “debt ceiling”).  Treasury’s capacity to borrow is likely to be exhausted by sometime in November (the exact date is uncertain).  It could be that Congress will be trying to work out spending options when the debt ceiling is reached – a kind of double crunch that those most opposed to spending may want to use to force cuts.   But with the public strongly opposed to self-inflicted crises, and with Republicans divided about how far to go with cuts, such brinksmanship may not work.

FY 2014 Appropriations box score:

The full House has passed the following appropriations bills:
Defense, Energy-Water, Homeland Security, and Military Construction-VA .
The full House Appropriations Committee has passed all appropriations bills except Interior-Environment and Labor-HHS-Education.

The full Senate has not passed any appropriations bills.
The full Senate Appropriations Committee has passed all appropriations bills except Interior-Environment.

The post The Approaching Crunch: Agreement on Spending Nowhere Near as Deadlines Loom appeared first on Coalition on Human Needs.

The flurry of activity and rhetoric around tax reform should not be interpreted as a signal that Congress is about to pass comprehensive tax reform anytime soon.  Most agree that a stand-alone tax reform bill in this Congress is unlikely and that the best possible chance to enact tax reform might be in the context of a deficit reduction deal later this year when the limit on the debt ceiling will need to be increased.

Many Democrats believe that any deficit reduction deal should replace the sequester cuts ($1.2 trillion – $85 billion in military and non-military spending cuts in 2013 and 8 more years of cuts through 2021).  The replacement they envision would generate net new revenues (be ‘revenue positive’) by closing individual and corporate tax expenditures or loopholes and by cutting programs in a more targeted way.  [Tax expenditures are special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates that result in foregone federal revenue.]  The revenue gained would be used to reduce the deficit and/or fund investments in education, building bridges and roads and other programs that would strengthen the economy and accelerate economic recovery.  Republicans whose goal is to reduce the size of the federal government are not concerned about the $1.2 trillion in cuts, especially the non-military ones, and would like to add significant reductions to entitlement programs.  Their perspective on tax reform is that it should not generate new revenue (be ‘revenue neutral’) with the savings achieved by closing loopholes used to lower both the individual and corporate tax rates.  Like most Democrats, the President seeks to replace the $1.2 trillion through a combination of selective program cuts and net increases in taxes on individuals.  Advocates are disappointed that he supports revenue neutral corporate tax changes.

Each party’s approach to tax reform is mirrored in the 10-year House and Senate budgets.  The Republican House-passed budget proposes to drop the individual income tax down to just two tax brackets, 10 and 25 percent, and it reduces the corporate income tax rate to 25 percent.  Reducing the top individual rate from its current 39.6 percent down to 25 percent provides a windfall to millionaires, who stand to gain an average of at least $200,000 each just in 2014, as shown by this analysis from Citizens for Tax Justice. The House budget proposal is also specific in saying that its tax changes will be revenue neutral. But other than a general statement about closing tax loopholes, it says nothing about how the trillions of dollars in tax cuts would be made up.  There are not enough loopholes for rich individuals to offset the cost of the huge income tax rate reductions they would receive.  That means the only way to pay for the rate reduction would be to raise taxes on low- or middle-income taxpayers.

The Democratic Senate-passed budget includes $975 billion in tax increases over ten years. It does not specify the precise nature of the tax increases, except to say that it is the intent of the Committee that the increases come from the wealthiest individuals and from large corporations. The budget discusses the opportunities for increasing revenues by reducing tax expenditures that provide the greatest benefit to upper-income taxpayers, without specifying which should be reduced or eliminated. It is specific in suggesting limits on the value of tax deductions or other preferences for the top two percent, and recommends reducing business tax loopholes.

Thus far only $600 billion in deficit reduction has come from revenue increases; those enacted in the January 1, 2013 American Taxpayer Relief Act (PL 112-240).  All of the revenue in the Act comes from the individual side of the tax code, none from the corporate side.  Individuals’ taxes increase slightly in 2013 for all income groups because of the expiration of the two percent payroll tax holiday, and somewhat more for upper-income households as their marginal tax rate increases from 35 percent to 39.6 percent.  Even with these changes the individual income tax system is still only modestly progressive. (A progressive system is one where the wealthiest pay a greater proportion of their income in taxes.)  Contrary to popular belief the wealthiest do not pay a vastly disproportionately share of taxes relative to their income.  When all taxes are considered (federal, state, and local) the lowest 20 percent of earners pay an effective tax rate of 18.8 percent of their income in taxes and the wealthiest one percent of earners pay an effective rate of 33 percent.  (For more details see Citizens for Tax Justice report.)  Advocates believe the individual tax code should be made more progressive through tax reform.

A common myth in the tax world is that corporate tax rates are too high (citing the 35 percent highest marginal rate), making corporations less competitive in the global market and therefore in need of lower taxes.  That might be true if corporations were actually paying the 35 percent rate but many are paying a significantly smaller amount, and in some cases they are paying no taxes.  The reality is that corporate profits are soaring. Profit margins are at an all-time high, while corporations are paying employees’ wages that are at an all-time low as a share of the GDP (total economic output), and the corporate share of taxes paid to the IRS continues to decline.  According to the Treasury Department, total federal corporate taxes collected in the U.S. in 2010 were 1.3 percent of GDP.   The most recent data from the Organizations for Economic Cooperation and Development (OECD) shows that corporations in the other 34 OECD countries that are the main U.S. trading partners paid 2.8 percent of their combined GDPs in taxes in 2010.

According to a recent Government Accountability Office report there are an estimated 80 tax expenditures that corporations use to avoid paying taxes.  In 2011, these resulted in $181 billion in revenue lost to the federal government, approximately the same as the total amount collected from corporations.  Companies among the profitable Fortune 500 from a range of sectors have legally used loopholes and expenditures in the tax code to avoid paying any taxes, and in fact, some have a negative tax liability and receive rebates from the federal government.  A Citizens for Tax Justice report is illustrative of companies that have paid no taxes and have received rebates over the past five years (2008-2012); among them are Apache, Facebook, General Electric, Principal Financial, Pepco Holdings, Ryder System and Tenet Healthcare.

Two of the biggest corporate tax breaks are one that allows companies to accelerate depreciation of machinery and equipment, and another that allows big multinational corporations to postpone paying U.S. taxes on foreign earnings until they bring those profits home which sometimes they never do. Estimates are that corporations have accumulated close to $2 trillion in offshore profits.  Many analysts believe that as Congress looks to revamp the tax code, a good starting point would be to examine the plethora of loopholes in the corporate code and make changes to ensure that profitable corporations pay their fair share.

Bi-partisan efforts are underway in the House Ways and Means Committee and in the Senate Finance Committee to lay the groundwork for tax reform.  In February, Ways and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI) announced the formation of 11 working groups to review current law in designated areas, research relevant issues, and compile feedback from stakeholders.  The report with the results of their work was published on May 6.  In March the Senate Finance Committee members started a series of weekly meetings to discuss tax policy focusing each week on one topic.  Their work continues.

Enacting tax reform legislation will be an uphill climb for multiple reasons. Neither the Ways and Means nor the Finance Committees began their discussions with a set of operating principles, for example, stating whether tax reform overall will be revenue positive or revenue neutral. Multinational corporations and small businesses are not in agreement about which loopholes and expenditures should be kept or eliminated.  The most expensive tax deductions in the individual code – for mortgage interest, charitable giving, state and local taxes, employer-provided health care – all have powerful constituencies that will fight to keep them in place.  Finding a legislative vehicle to move tax reform will also be a challenge. Leading Democrats reject the notion that tax reform should be linked to the debt ceiling.  Stay tuned.

The post CHN: Tax Reform: A Long Shot 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.

If the Bush-era tax cuts on income over $250,000 are allowed to expire, married couples with income in the $1 – 2 million income range will still receive about $8,800 in income tax cuts in 2013.  But they won’t receive more than $66,000 – the amount they would receive if the tax cuts for income above $250,000 are extended.  The House voted on August 1 for those couples to keep their $66,000.  The Job Protection and Recession Prevention Act of 2012 (H.R. 8), sponsored by House Committee on Ways and Means Chairman Dave Camp (R-MI), passed largely along partisan lines (256-171), with only 1 Republican voting against the bill and 19 Democrats voting for it.

The House bill was notable not only for what it would give to the rich, but what it would take away from low- and moderate-income families.  H.R. 8 would end the improvements in the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit that were enacted as part of the 2009 economic recovery legislation.  Ending these provisions will raise taxes on low-income families, even as hundreds of billions of upper-income tax cuts are preserved.  For example, a full-time minimum wage-earning parent with two children would see her family’s Child Tax Credit reduced by about $1,500.  Continuing the Child Tax Credit and EITC improvements would help 25.7 million children in 13 million families, according to Citizens for Tax Justice, with an average benefit per family of $843.
The week before, the Senate had passed legislation continuing tax cuts on income up to $250,000, including the low-income tax credits ended in the House bill.  The extra tax cuts on higher incomes would be left to expire.

Contrary to expectations, Senate Republican leaders agreed to allow the Democratic and Republican tax cut bills to come up for a vote, without subjecting them to procedural hurdles that could only be overcome with 60 votes.  The Middle Class Tax Cut Act (S. 3412), sponsored by Majority Leader Harry Reid (D-NV), was thus able to pass with a vote of 51-48.   All Democrats and Independents voted for the bill except for Senators Lieberman (I-CT) and Webb (D-VA).  All Republicans opposed it.

Now that both House and Senate have taken votes members can campaign on, Congress recessed for the month of August.  If Congress does not resolve the differences between the two bills, all the tax cuts will expire at the end of December.  Final decisions about the tax cuts are likely to be made after the election, combined in a negotiation that prevents or lessens the impact of the across-the-board (sequestration) cuts slated to begin in January 2013.  (See appropriations article in this issue.)

Choosing to continue the extra tax cuts for the wealthiest two percent is costly.  Over ten years, these tax cuts will cost over $1 trillion, counting higher interest payments on the money borrowed to keep those tax cuts coming.   Discontinuing them can free up funds needed to invest in jobs and economic security and to reduce the deficit.  Since the public believes the wealthiest Americans should pay more in taxes, Republican proponents of continuing the high-end tax cuts have criticized the Reid bill (and the President’s very similar proposal) as being a tax increase on small business.  Although small businesses often pay their taxes through the individual income tax (and not through the corporate tax code), only 2.5 percent of all small businesses have incomes high enough to see any increase if tax cuts for income above $250,000 were discontinued.

The Bush tax cuts, begun in 2001, have provided outsized benefits to the richest Americans.  People with annual incomes above $1 million have received more $1 million in tax cuts over the past 9 years; those with incomes between $200,000 and $500,000 averaged $74,000 in tax cuts over the same period.

That is not enough for the enthusiastic tax cutters in the House.  In addition to the $3.8 trillion cost of extending all the Bush tax cuts over 10 years, the House passed H.R. 6169, Pathway to Job Creation Through a Simpler, Fairer Tax Code Act of 2012.  This bill would set up a fast track process that would push through drastic changes in the tax code.  The bill gives instructions to the House Committee on Ways and Means to produce legislation to create two individual income tax brackets, at 10 percent and 25 percent.  Corporate income taxes would also be reduced to a maximum of 25 percent, and the Alternative Minimum Tax (AMT) would be eliminated.  The combined cost of these extreme steps would exceed $4 trillion over ten years, with the benefits once again falling very disproportionately to the highest-income taxpayers.  While some of these mammoth tax cuts are to be paid for by reducing or eliminating other tax breaks, the instructions do not specify which ones.  A new analysis by the Brookings-Urban Institute Tax Policy Center of a slightly less extreme Mitt Romney tax plan demonstrated that it is “not mathematically possible” to replace the revenues lost from slashing income tax rates without shifting the tax burden from the rich to middle- and low-income people.   The Romney plan, which cuts income tax rates slightly less than H.R. 6169 would require, will result in a one-year revenue loss of $360 billion. About two-thirds of tax expenditures, such as the home mortgage deduction, low-income tax credits, charitable deductions, employer-provided health care deductions, etc., would have to be eliminated to pay for the rate reductions.  Since these tax expenditures were designed primarily to help the middle class (or lower), it is impossible to cut them so massively without requiring the middle class to pay more.  In this scenario, a family earning $75,000 – $100,000 would pay $884 more in taxes, while a family earning over $1 million would see their taxes drop by more than $87,000.  Since H.R. 6169 slashes rates even more deeply, the inequities would be more pronounced than this analysis shows.  The bill passed 232-189; no Democrats voted for it; 3 Republicans opposed it.

The post CHN: The House Says Yes to Extra Tax Breaks for the Wealthiest; the Senate Says No; House Also Votes for Fast Track Procedures to Slash Taxes by Trillions appeared first on Coalition on Human Needs.

As the October 1 start of the new fiscal year draws near, Congress has set forth a path to avert what has become an annual question: “Will they (Congress) allow the government to shut down?”  Democrats and the Administration have endorsed the timetable originally proposed by conservative Republicans to fund the government for six months, through March of next year.  The plan will be based on the $1.047 trillion funding cap for annually appropriated programs for fiscal year (FY) 2013 established in the 2011 Budget Control Act (BCA) and used by Senate Democrats and the Obama Administration to set FY 2013 funding.  This amount is $4 billion above this year’s level of $1.043 trillion.  The continuing resolution (CR) will start from FY 2012 program levels, with the expectation that urgently needed funds beyond FY 2012 amounts will be added, with details to be worked out during the August recess.  A vote on the CR will occur in September before Congress leaves for election campaigning.  If passed as expected, this takes regular appropriations off the table during the post-election lame duck session when the biggest issues will be the impending across-the-board sequestration cuts set to take effect on January 1 and the expiration of the Bush-era tax cuts on December 31.  (See article on taxes in this Human Needs Report.)

Prior to the agreement on the CR both the House and Senate had passed 11 of the 12 appropriations bills in their Appropriations Committees and the full House had passed to 6 of them.  None of the bills has been signed into law.  The Interior-Environment bill in the Senate and Labor-HHS-Education in the House saw the least action.  The Senate Interior-Environment bill was pulled from consideration in committee to prevent Senate Republicans from offering policy rider amendments attacking Environmental Protection Agency regulations. The House had approved its Labor-HHS-Education bill in subcommittee, with funding $6.8 billion below the enacted level for FY 2012 and $8.8 billion less than the Senate Committee’s Labor-HHS-Ed bill (S. 3295).  The bill, which defunded the health care law, was anathema to Democrats and portended a contentious road ahead.  See details of the House Labor-HHS-Ed bill in the July 24 Human Needs Report.

All the bills the House passed were based on the much lower overall funding level of $1.028 trillion.  Betting on being in a stronger position after the election when they hope to reduce funding, Republicans have agreed for now to the higher spending level for the CR and to set aside controversial policy riders in the bills.  Some Democrats believe that their party would have had greater leverage to finalize a more favorable deal with a 3-month CR that expired at the end of December. Recalling how last summer Republicans held an increase in the debt ceiling hostage in exchange for tight spending caps but no new revenues, some Democrats are leery of a 6-month deal that would expire around the time Congress will also need to act on increasing the debt ceiling.

More Cuts:  Separate from the funding levels approved for regular FY 2013 spending, both defense and non-defense are set to be cut from current levels by $55 billion each in FY 2013 unless a deficit reduction deal is reached by January 1.  Each program that is not exempt will be subject to across-the-board cuts (aka “sequestration”).  (Last week the Administration said that military personnel would be exempt.)  The BCA’s drafters included sequestration to push Congress to enact a deficit reduction plan in order to avoid unpopular reductions to defense and non-defense programs.  No one thinks the automatic sequestration cuts are an appropriate way to achieve deficit reduction.  Defense contractors and their allies in Congress have been particularly aggressive in beating the drum about the dire consequences sequestration would have on military jobs and capabilities.  Some have called for reconfiguring sequestration so that more of the cuts would fall on non-defense programs.  Democrats and the Administration have stood firmly against such a strategy.  In fact, many military analysts believe there is room for more cuts in the Department of Defense budget if implemented rationally.  On July 19 during consideration of its FY 2013 Defense Appropriations bill, in a sign that resistance may be lessening to cutting military spending, the House adopted 247-167 a bipartisan amendment co-sponsored by Representatives Mick Mulvaney (R-SC) and Barney Frank (D-MA) that would reduce spending by $1.1 billion.  While the cut is small compared to the bill’s overall cost of nearly $606 billion, the vote was significant.

On August 1 Acting Director of the Office of Management and Budget Jeff Zients stated in testimony before the House Armed Services Committee, “A great deal has been written about the devastating effects the sequester will have on defense programs,…. But less attention has been paid to the equally destructive effects sequestration will have on non-defense programs.  An eight percent reduction in non-defense discretionary funding would cause severe harm to many of the investments most critical to our country’s long term economic growth. More than 16,000 teachers and aides responsible for educating thousands of children would lose their jobs. In addition, 700,000 women and children would lose the nutrition assistance they need to remain healthy. 100,000 kids would lose places in Head Start, which helps them begin school ready to learn. The National Institutes of Health would have to halt or curtail vital science, such as research on cancer and childhood diseases. Let me underscore this point — the across-the-board cut required by the BCA would jeopardize critical programs that improve children’s health and education, adversely impacting future generations.”  See full testimony here.

Similar concerns are at the heart of the report “Under Threat: Sequestrations Impact on Nondefense Jobs and Services” issued by Senate Labor-HHS-Ed Subcommittee Chairman Tom Harkin (D-IA) on July 25.  It provides a detailed state-level analysis of sequestration’s effects on education, health, social services, and labor programs.  The report goes beyond estimated funding cuts to show the numbers of people who would lose services and workers who would lose jobs.

The 10-year budget caps in the BCA reduce the deficit by $1 trillion, all from cutting spending.  Advocates believe that the deficit needs to be addressed in a responsible way through a balanced approach that unequivocally needs to include significant new revenues.

The post CHN: Congressional Leaders and Administration Agree on 6-Month Spending Outline; But Automatic Spending Cuts and Tax Increases Still Loom appeared first on Coalition on Human Needs.

President Obama and the Senate leadership want to continue the tax cuts on income up to $250,000, but to discontinue extra breaks on income above this amount.  This means everyone with income will continue to get a tax cut, including millionaires (they get it on their first $250,000 in income).  In addition, the Obama and Senate proposals would continue low-income tax credit improvements enacted in 2009, to prevent low-income workers with children from seeing a large increase in their taxes.  Republicans in the House and Senate have opposed allowing any of the tax cuts to expire – except for the low-income credit improvements.  In the tax cut bill (S. 3401) introduced in the Senate by Senators Hatch (R-UT) and McConnell (R-KY), millionaires will each average $164,000in tax reductions in FY 2013, but a full-time minimum wage earner with two children would see their Child Tax Credit reduced from $1,725 to $218.

Senate Majority Leader Reid (D-NV) has introduced the Middle Class Tax Cut Act (S. 3393), which would continue the tax cuts on income below $250,000 and maintain current law for the low-income tax credits.  Leader Reid is seeking an agreement with Minority Leader McConnell to bring both bills to the floor, with only a simple majority needed for passage, instead of 60 votes needed to shut off debate.  It is highly unlikely that McConnell will agree, since the Democrats will have at least 51 votes for Reid’s bill.  Without such an agreement, the Democrats will try to cut off debate on their bill, most likely on or about July 25.  They will not have the 60 votes needed for cloture (cut off debate), and the bill will not be able to move forward.

Will the Senate remain at loggerheads over the tax cuts until they expire at the end of this year?  Senator Murray (D-WA) gave a speech at the Brookings Institution on July 16 firmly stating that “…if we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013, rather than lock in a long-term deal this year that throws middle class families under the bus.”  Senator Murray is part of the Democratic party leadership in the Senate, and she is reflecting the stance of her party in the Senate and of President Obama.  They are willing to see the tax cuts expire, with the expectation that soon after the beginning of the year there will be further negotiations.  Instead of being accused of raising taxes, the action before Congress will then be to restore tax cuts for the vast majority of Americans.  Democrats hope that it will be easier at that point to avoid reinstating the upper-income tax cuts.

Those who wish to let the tax cuts for the top 2 percent expire have additional leverage.  They are insisting that the automatic across-the-board spending cuts scheduled to begin in January (called “sequestration”) should only be replaced by a balanced plan that includes fair sources of revenue.  It is estimated that allowing the tax cuts for the highest 2 percent to expire will bring in $70 – $80 billion in 2013.  That alone is not sufficient to replace the sequestration cuts, but it is a good start.

Some have begun speculating on the way back from the edge of the cliff.  Senator Lindsey Graham (R-SC) suggested that sequestration could be delayed for a year by replacing it with a combination of revenues and spending cuts similar to a “mini-Bowles-Simpson” (the bipartisan deficit reduction plan created by the co-chairs of the not too “Supercommittee,” which failed to convince Congress to go along with its plan, thus triggering the impending set of automatic cuts to military and domestic appropriations).  “Let’s take the concept for one year and apply it on the defense side,” Graham was quoted in CQ.  Only replacing the military cuts would be a non-starter for many Democrats.  Senator Murray, in her Brookings speech, said “We are also not going to allow just the defense cuts to be replaced without addressing the domestic spending cuts that would be devastating to the middle class.”  The Obama Administration was also reported to be floating a proposal to delay the across-the-board cuts for six months, paid for by letting the tax cuts for the top 2 percent expire while everyone else’s tax cuts would be extended for a year.

Senator Murray co-sponsored with Senator McCain (R-AZ) a successful amendment added to the Senate farm bill that called for the Administration to report on the consequences of all the sequestration cuts, not just those to the Pentagon.  The House followed suit on July 18 with H.R. 5872, the Sequester Transparency Act, which calls for simpler reporting from the Administration on the impact of the sequester.  It passed 414-2. Whether or not Congress works out the differences to enact these reporting requirements into law, the Administration has been gradually supplying some estimates of sequestration’s impact.  In response to a request by Rep. Edward Markey (D-MA), HHS sent a letter with the number of people affected in a few programs.  For example, 100,000 children would lose Head Start; 80,000 fewer children would receive child care assistance; 169,000 fewer individuals would be admitted to substance abuse treatment; and 14,200 fewer homeless people would receive assistance.  In addition, Secretary of Education Arne Duncan is scheduled to testify on July 25 in a Senate Labor-HHS-Ed Appropriations subcommittee hearing to probe the impact on education.

While powerful players including defense contractors and former Vice President Cheney have been making the rounds on the Hill to urge Congress to prevent the sequester’s $55 billion in military cuts from taking effect, advocates for domestic priorities have also been speaking out.  Nearly 3,000 organizations nationwide signed aletter to Congress opposing the domestic and international cuts.  The letter was circulated by a coalition called the NDD (non-defense discretionary) Summit; this coalition, which includes groups concerned with health, education, the environment, consumer protection, scientific research, housing, and many more areas with federal appropriations, has scheduled a rally featuring Senate Appropriations Chair Tom Harkin (D-IA) at the capitol on July 25.

As the deadlines close in for the tax and spending cuts, Congress knows what it doesn’t like.  But agreement to prevent those bad outcomes remains elusive, at least for now.

The post CHN: The Usefulness of Cliffs: The Clock Keeps Ticking on Expiring Tax Cuts and Looming Spending Reductions appeared first on Coalition on Human Needs.

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The vote to limit debate on the bill fell short of the required 60 votes at 51-47, with four Democrats – Mark Begich (AK), Mary Landrieu (LA), Ben Nelson (NE) and Jim Webb (VA) – breaking with their party and voting no. The two Republican Senators from Maine, Susan Collins and Olympia Snowe, also diverged from their party’s stance by voting in favor of advancing the bill.

Majority Leader Harry Reid hoped to use this vote to put Republican Senators on record, in an election year,  as lending support to big oil. Many Republicans, on the other hand, claim that their lack of support for the bill stems from fears about gas and oil prices rising for consumers if these tax breaks are repealed. Most advocates and the Administration believe this fear to be unfounded, as big oil’s profits are currently hitting record highs – in 2011, the five largest oil companies (BP, Chevron, ConocoPhillips, ExxonMobil, and Shell) brought in an astounding $137 billion in profits, 75 percent higher than in 2010 (click here to read more).

The Administration supports the passage of S. 2204, which over 10 years would repeal $21 billion in tax breaks for these companies, with the belief that these tax breaks are unnecessary in a time when the oil industry is reporting outsized profits. A Statement of Administration Policy declared that “this money can be better spent promoting domestic manufacturing, encouraging the development of clean energy technologies that will reduce our dependence on oil, and cutting the deficit” (read more here).

The post CHN: Senate Fails to Advance Bill to End Tax Breaks for Big Oil appeared first on Coalition on Human Needs.