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.

The post CHN: Senate Fails to Move Forward on the Buffett Rule appeared first on Coalition on Human Needs.

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.

The Paying a Fair Share Act of 2012 (S. 2059), introduced by Senator Sheldon Whitehouse (D – RI), essentially seeks to make the Buffett Rule part of the US tax code by requiring millionaires and billionaires to pay a minimum of 30 percent of their income in taxes, with a phase-in for incomes between $1-2 million. The Senate will vote on S. 2059 on Tax Day, April 17. Representative Tammy Baldwin (D-WI) has introduced a counterpart to S. 2059 in the House, H.R. 3903, although the House currently has no plans to vote on it.

The Buffett Rule is named for Warren Buffett, the billionaire investor from Omaha who argues that people with very high incomes pay too little in taxes.  He cites himself as an example, noting that he pays a lower effective tax rate than his secretary.

There are two primary reasons why multi-millionaires such as Buffett, who live off of profits from investment income, end up paying less in taxes. First, capital gains and stock dividends are subject to lower rates than earned income in the personal income tax system. Second, investment income is exempt from payroll taxes (for more, see this Citizens for Tax Justice report).

The Buffett Rule would raise around $25 billion each year after 2012, assuming that the Bush tax cuts expire as scheduled. The substantial increase in revenue raised by the Buffett Rule’s implementation would help the US government address its budget problems, and would affect a very small percentage of people at the top of the income scale. In fact, only 0.1 percent of Americans would end up paying more taxes under the Buffett Rule, and even then, the average tax increase for these wealthy individuals would be only 2.2 percent (see report from the Center for American Progress).

However, some analysts believe that the implementation of the Buffett Rule would lead to a more confusing tax code (for more, see this Tax Policy Center article).

Those seeking a fairer share of tax revenues from upper-income taxpayers favor other proposals in addition to the Buffett Rule.  Some advocates favor ending tax preferences for investment income as one of the most effective ways to tax the super-rich.  Higher taxes on investment income would raise about $70 billion annually (under the same assumption that the Bush-era tax cuts will expire at the end of 2012). Many advocates also support the President’s proposal to let the Bush-era tax cuts expire at the end of 2012 for any individual making over $200,000, or for joint tax-filers making over $250,000. This proposal would bring in $314 billion more than letting the tax cuts expire only for millionaires. This also means that the two top marginal tax rates for these individuals would return to 2001 levels (from 33 percent to 36 percent and from 35 percent to 39.6 percent), although most households would not actually pay the full rate because of deductions available to them (see the full Citizens for Tax Justice factsheet here). The Buffett Rule taxes adjusted gross income at a minimum level of 30 percent regardless of deductions made, another reason why advocates believe that these two proposals are consistent with each other and should both be enacted. The Buffett Rule, if made law, would be one step forward in the progressive tax reform that many advocates wish to see.

The post CHN: Proposals to Implement the “Buffett Rule” Surface in Congress appeared first on Coalition on Human Needs.

Living within the annual caps for appropriations means that “non-security” appropriations drop from $373.6 billion in FY 2012 to $356.8 billion in the President’s FY 2013 request (a 4.5 percent cut, not counting inflation).  These include education, labor, health, many services for children and seniors, housing, transportation, the environment, and many other areas.  “Security” spending, including the Pentagon, international funding, and veterans’ services, bumps up from $684 billion in FY 2012 to $686 billion in FY 2013.

The federal budget includes programs that require annual appropriations by Congress (called “discretionary”) and mandatory programs, such as Social Security, Medicaid, Medicare, and SNAP/food stamps, that spend money based on the laws authorizing those programs without needing Congress’ yearly okay.  The budget also projects revenue levels, and recommends tax cuts and increases to meet its ten-year revenue estimates.  President Obama’s $3.8 trillion budget for FY 2013 projects only $2.9 trillion in revenues, for a deficit of $900 billion, or 5.5 percent of Gross Domestic Product (GDP, or all economic activity).  Below 3 percent is considered a more sustainable level.  The President predicts that the deficit will decline substantially between now and FY 2022, reaching 2.7 percent of GDP in 2018, and then remaining at 2.8 percent over the next few years.

A Focus on Job Creation. The Obama Administration budget calls for $350 billion in new up-front investments to create or save jobs, to be carried out mostly between now and FY 2015.  These include $50 billion in road and transit rebuilding, $30 billion to modernize at least 35,000 schools, $25 billion to hire and retain teachers and $5 billion for first responder jobs.  Another initiative is Pathways Back to Work, funded at $12.5 billion ($8.4 billion in FY 2013) to provide subsidized jobs and training for low-income, low-skilled workers and summer and year-round jobs and training for youth.  A new community college initiative would invest $2.1 billion in FY 2013 and nearly $7.5 billion over 5 years in education/training aimed at helping people get jobs.
In addition, Project Rebuild will hire workers in low-income communities to rehab or renew residential and commercial properties.  The budget also proposes an infrastructure bank (at $9.8 billion over 10 years), the National Affordable Housing Trust Fund ($1 billion, expected to result in production of more than 10,000 units of low-income housing), and various incentives for innovation in manufacturing, including tax credits.

Economic Security Protections. The Administration recognizes that the safety net must be protected, especially during hard times.  It reverses a cut in SNAP/food stamp benefits scheduled to take effect starting in 2013, and assumes the continuation of federal unemployment benefits (without the cutbacks in weeks just adopted for the rest of 2012 (see article in this issue).  The budget also would make permanent the improvements in the Child Tax Credit and Earned Income Tax Credit.  These make the Child Tax Credit available starting with earnings over $3,000 (previously the first $8,500 in earnings was excluded in calculating the CTC) and provide a higher Earned Income Tax Credit for working families with three or more children.  Both these credits are “refundable” – that is, available to families as a refund check even if their earnings are too low to owe federal income tax.

The Administration proposes $2.2 billion over 10 years to modernize child support collections, and provides incentives to states to reduce the loss of income to states when they turn over all child support collected to the families owed, instead of keeping some of it to defray the costs of public assistance.

More modest but important, the Administration also proposes $5 million in new grants to assist states wishing to implement their own paid leave programs.

Under the Appropriations Caps:  Some Gains. Even within the constraints imposed by the caps, the President’s budget manages to invest in certain human needs priorities.  Some of the winners include annual appropriations for Head Start (up $494 million since FY 2011) and child care (up $380 million since FY 2011 and $325 million since FY 2012).  Race to the Top, the Administration’s incentive program for improving K-12 education, is increased by $301 million, or 55 percent above its FY 2011 level.  The maximum Pell grant award rises from $5,550 in FY 2012 to $5,635 in FY 2013; college work-study funding rises 15 percent, from $977 million to $1.127 billion.  Nutrition funding for Women, Infants and Children (the WIC program) grows to $7.04 billion in FY 2013, a one-year increase of $423 million, to support a caseload of 9.1 million.  Programs to assist the homeless are increased from $1.9 billion to $2.23 billion from FY 2012 to FY 2013.  According to the Department of Housing and Urban Development, 1.6 million people were homeless at some point between October 1, 2009 and September 30, 2010.  The Administration requests $75 million to fund affordable units for 10,000 veterans, who are homeless at levels very disproportionate to their numbers.

But Some Losses. However, cabinet departments that include many of the discretionary programs of importance to low-income people are cut substantially.   The Department of Health and Human Services’ funding declines from $84.4 billion in FY 2010 to $76.7 billion in FY 2013, as requested by the President.  Taking inflation into account over that period, HHS funding would decline nearly 15 percent.  The Department of Labor drops from $13.5 billion in FY 2010 to $12.0 billion in the President’s FY 2013 request, although $448 million of that loss is from the movement of Community Service Employment for Older Americans to the Administration on Aging at HHS.  Adjusting for that change and for inflation, the DOL cut would be just under 14 percent from FY 2010 to FY 2013.  The Department of Housing and Urban Development drops from $42.8 billion in FY 2010 to $35.3 billion in the President’s FY 2013 budget, although some of the drop is offset by an anticipated $4.4 billion in increased receipts from increased fees from borrowers and others.  With reductions like these, services needed by low-income people do not escape painful cuts.  Within HHS, the Low Income Home Energy Assistance Program (LIHEAP) drops from $3.472 billion in FY 2012 to $3.02 billion in the President’s plan.

According to the National Energy Assistance Directors’ Association, this cut will deny heating or cooling assistance to 1 million low-income households.   The Administration continues its attack on the Community Services Block Grant, once again recommending that its funding be cut in half (from $677 million in FY 2012 to $350 million in FY 2013).  CSBG provides funding to about 1,100 community action agencies nationwide, which administer programs such as Head Start, emergency food, LIHEAP, and job training, and provide an entry point for low-income people to receive a broad range of anti-poverty services.   Congress did not go along with this request last year; with stringent deficit reduction targets to meet, it is not clear what will happen this time.

Also within HHS, there are reductions in mental health and substance abuse funding.  Mental health funds decline from $1.022 billion in FY 2011 to $952 million in the President’s FY 2013 request.  Substance abuse treatment and prevention decline by $117 million over the same two year period, a nearly 10 percent cut, not counting inflation.  The Administration hopes to maximize effectiveness despite reduced funding both through competitive grants and because the gradual implementation of the Affordable Care Act will provide additional funding for these services.  Still, on top of substantial recent cuts made in state funding, it is hard to be confident that no loss in services will occur, at least in the short run.

Within HUD, although finding adequate funding to cover existing households in subsidized rental housing was a top priority, the Administration does so in part by increasing the minimum rents paid by very low-income tenants to a mandatory $75 a month.  Now, Public Housing Authorities may charge a minimum rent of $50, but many do not choose to do so.  For families or disabled or elderly individuals with extremely low incomes, paying the $75 will prove very difficult.  The Community Development Block Grant is level-funded at $2.95 billion, a disappointment to many community agencies who make use of its funds for diverse services including child care and help for victims of family violence.  Housing for low-income elderly (Section 202) is up from a low $375 million in FY2012 to $475 million in FY 2013, but well below its $825 million in FY 2010 funding.  Housing for persons with disabilities (Section 811) is down from $165 million in FY 2012 to $150 million in the President’s proposal; it was funded at $300 million in FY 2010.  Still, these combined funding levels are estimated by HUD to allow 5,300 new supportive housing units as compared to the current year.

With the Department of Labor, the Job Corps program is reduced from $1.7 billion in FY 2012 to $1.65 billion in the President’s request.  In FY 2012, the total appeared larger (nearly $2.4 billion total) because all of the program costs were paid for within the fiscal year; more typically, a substantial portion is “advance-funded” into the next fiscal year.  The Administration has apparently returned to the use of advance funding, but even taking that into account, Job Corps loses about $50 million. DOL plans to close sites it does not believe are effective, but will open new sites in New Hampshire and Wyoming.  Unemployment Insurance Administration is also cut by $245 million (down to $2.93 billion in the President’s FY 2013 request).  The Administration judges that the amount will serve 13.7 million beneficiaries.  There is a contingency reserve requested in case the workload grows beyond these expectations.

Most training programs are funded at about the same level as FY 2012, but the proposed addition of $8.4 billion in FY 2013 Pathways Back to Work funding, as well as investments in community colleges, would provide more job training and employment opportunities for low-income workers than have been available since the economic recovery act legislation funding ran out.

Options for Savings. The 1,600+ groups that signed the original Strengthening America’s Values and Economy for All Statement of Principles called for deficit reduction that protects low-income people and that invests in job creation, while reducing the deficit substantially through fair revenue increases and cuts in military spending. The President’s budget is in agreement with these basic principles, although some tax and military experts argue that more savings in both these areas are possible, and would leave more room for meeting needs as well as reducing the deficit.  The President proposes $525 billion in base Pentagon spending, plus another $88 billion for war costs in FY 2013.  The non-war funding Defense Department funding declines by a little over 1 percent; counting related expenditures, such as defense nuclear capacity under the Department of Energy, the reduction is about 2.6 percent.  Either way, this is a much smaller reduction than the overall cuts to domestic spending.   The Obama Administration has committed to making 10 years of cuts to discretionary programs called for in the deficit reduction plan that passed Congress, including defense, international, and domestic programs.  The Administration shows $487 billion in defense savings over ten years as a result of the reductions imposed in the FY 2013 budget (these savings do not count reductions in the Iraq and Afghanistan war efforts).  However, respected analysts have pointed to about a trillion dollars in Pentagon savings that can be made without jeopardizing national security.  Lawrence Korb, a former Reagan Administration defense official, has estimated over $100 billion in defense cuts that could take effect in FY 2015 alone.

In addition, many revenue increases have been proposed beyond the $1.5 trillion the President recommends over the next 10 years.  If capital gains were taxed at the same rate as other income, it would bring in hundreds of billions over the next decade.  The Obama budget modestly raises the tax on capital gains for upper-income taxpayers, but only raises $36 billion for the same time period.  The Obama budget captures $147 billion from reforming U.S. treatment of companies with overseas profits.  Ending the rule allowing U.S. corporations to “defer” U.S. taxes on foreign profits would save well over $500 billion.  There are many other examples of revenue options greater than those proposed in the Obama budget – for example, the President previously had proposed $90 billion in higher taxes on the financial industry.  His FY 2013 budget proposes $19 billion in new finance industry taxes.  The provisions that are included in the President’s budget are welcome, and are a marked contrast to the intransigence of Republicans and a few Democrats in Congress in opposing any tax increases.  So far, no tax increases have been enacted either to reduce the deficit or to contribute to economic recovery.  Continuing on this course will result in harsh cuts that will stall economic growth – and hurt vulnerable people.

The post CHN: The President’s FY 2013 Budget: Despite Tight Funding Caps, Some Human Needs Priorities Maintained appeared first on Coalition on Human Needs.