Attempts are being made to implement a national employment eligibility verification system (EEVS). It is being touted as a way to keep undocumented immigrants from entering the U.S. workforce. However, many experts and advocates believe it will not meet its intended goal and will instead overburden the Social Security Administration and harm workers, the elderly and people with disabilities.
Two bills have been introduced in the House that would mandate the establishment of such a program. One is the Secure America Through Verification and Enforcement (SAVE) Act, H.R. 4088, sponsored by Representatives Heath Shuler (D-NC) and Tom Tancredo (R-CO). The other is the New Employee Verification Act of 2008, H.R. 5515, which was introduced by Representative Sam Johnson (R-TX). Each would require that all 7.4 million employers in the U.S. verify the employment eligibility of every employee with the Social Security Administration (SSA). The system would be modeled after the Department of Homeland Security’s experimental Basic Pilot program, recently renamed E-Verify. Various entities that have reviewed Basic Pilot/E-Verify – including independent researchers commissioned by the U.S. Department of Homeland Security (DHS) in 2007, the Government Accountability Office, and the Social Security Administration’s Office of the Inspector General – have found it riddled with problems.
One of the biggest issues with E-Verify, which raises concerns for the proposed national employment verification system, is the high error rate in SSA’s database. According to SSA’s Office of the Inspector General an estimated 17.8 million agency records contain discrepancies that can cause the system to incorrectly classify someone as ineligible to work. This would mean, according to SSA, that if E-Verify becomes a mandatory national program, 2.5 million workers a year could be misclassified as unauthorized to work. It would be up to each individual to then contest the erroneous classification with SSA.
All of this would have the negative effect of preventing SSA from meeting its current responsibilities. It would most certainly delay the already slow processing of applications for benefits for people with disabilities. It is expected that SSA would have to contend with 3.6 million extra visits or calls made to its field offices per year if EEVS is implemented. As it is SSA is struggling to keep pace with its current caseload. In 2007 there were 1.4 million disability cases pending at the initial claims, reconsideration, and hearing levels. The inevitable slowdown in services would further hamper the agency’s ability to administer benefits and would also hurt individuals’ prospects for work as they wait long periods for their work eligibility issues to be resolved.
A further complication with E-Verify, and consequently EEVS if implemented, is that it provides very few safeguards to workers. The DHS commissioned evaluation of E-Verify found that 22 percent of employers restricted work assignments, 16 percent delayed job training, and 2 percent reduced pay while workers challenged the errors in the SSA database. It also found that some employers did not even notify workers of the database error or discouraged them from contesting the claim, and worse still, that close to half of the employers participating in E-Verify screened workers before they hired them which is against program rules. The National Council of La Raza captures the damaging effects of pre-screening: “Preemployment screening is an extremely harmful practice, because people who are authorized to work but have errors in their records are denied jobs without ever knowing that a database error was the culprit, and without having an opportunity to correct the error.”
Implementing EEVS would not only have adverse affects on the current U.S. workforce and the SSA’s ability to issue benefits, but it would also be costly. The Congressional Budget Office estimates that the implementation of the SAVE Act, which would impose a national EEVS, would cost the federal government $23 billion over 10 years. Additionally, it would decrease federal revenue by $17.3 billion dollars over that same time period.
Republicans have filed a discharge petition to bring the SAVE Act directly to the floor of the House, bypassing any committee review. The petition needs 218 signatures; thus far 185 signatures have been collected. House leadership plans to schedule a series of hearings on EEVS to better educate Members about the inherent problems with this program.
Wednesday, April 16, 2008
22 States Face Major Budget Shortfalls in 2009; Others Expect Budget Problems
By Elizabeth C. McNichol and Iris Lav
Summary - At least twenty-five states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 25 states, specific estimates are available for 22 states and the District of Columbia; the combined deficits of these 22 states plus the District of Columbia are expected to total at least $39 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.
The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.
The vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.
The Center on Budget and Policy Priorities currently is monitoring state fiscal reports and is in touch with state officials and/or relevant state nonprofit organizations in the 50 states and DC.
The fiscal situation appears to be as follows.
· Over half of the states are anticipating budget problems.
· The 22 states in which revenues are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arizona, California, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $38.8 to $40.5 billion, averaging 8.8 – 9.2 percent of these states’ general fund budgets. (See Table 1.)
· Another three states face budget shortfalls that will need to be closed for fiscal year 2009, but information on the size of those deficits is not available. They are Louisiana, Michigan, and Mississippi. Analysts in three other states — Connecticut, Missouri, and Texas — are projecting budget gaps a little further down the road, in FY2010 and beyond.
This brings the total number of states identified as facing budget gaps to 28 — more than half of all states. The remaining 22 states did not foresee FY2009 budget gaps at the time of the survey either because their budgets remain strong or because they have not yet prepared updated revenue and spending projections for fiscal year 2009. The list of states facing budget gaps is likely to grow as additional state budgets are released in preparation for the upcoming legislative session.
Some mineral-rich states — such as New Mexico, Alaska, and Montana — are seeing revenue growth as a result of high oil prices. Other regions’ economies are less affected by the national economic problems. For example, states with high levels of farm exports are benefiting from the high price of corn and soybeans and the falling value of the dollar. This does not mean, however, that local governments in those states will escape fiscal stress. Some states with mineral revenues or farm exports have been affected by the housing bubble and could face widespread local government deficits.
In states facing budget gaps, the consequences could be severe — for residents as well as the economy. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Even if the economy does not fall into a recession as it did in the earlier part of this decade, actions will have to be taken to close the budget gaps states are now identifying. The experience of the last recession is instructive as to what kinds of actions states may take.
· Cuts in services like health and education. In the last recession, some 34 states cut eligibility for public health programs, causing well over 1 million people to lose health coverage, and at least 23 states cut eligibility for child care subsidies or otherwise limited access to child care. In addition, 34 states cut real per-pupil aid to school districts for K-12 education between 2002 and 2004, resulting in higher fees for textbooks and courses, shorter school days, fewer personnel, and reduced transportation.
· Tax increases. Tax increases may be needed to prevent the types of service cuts described above. However, the taxes states often raise during economic downturns are regressive — that is, they fall most heavily on lower-income residents.
· Cuts in local services or increases in local taxes. While the property tax is usually the most stable revenue source during an economic downturn, that is not the case now. If property tax revenues decline because of the bursting of the housing bubble, localities and schools will either have to get more aid from the state — a difficult proposition when states themselves are running deficits — or reduce expenditures on schools, public safety, and other services.
Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend.
The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.
States Have Restrained Spending and Accumulated Rainy Day Funds - Many states have never fully recovered from the fiscal crisis in the early part of the decade. This fact heightens the potential impact on public services of the deficits states are now projecting.
State expenditures fell sharply relative to the economy during the 2001 recession, and for all states combined they remain below the FY2001 level. (See Figure 1.) In 18 states, general fund spending for FY2008 — six years into the economic recovery — remains below pre-recession levels as a share of the gross domestic product.
In a number of states the reductions made during the downturn in education, higher education, health coverage, and child care remain in effect. These important public services will suffer even more if states turn to budget cuts to close the new budget gaps they now anticipate.
One way states can avoid making deep reductions in services during a recession is to build up rainy day funds and other reserves. At the end of FY2006, state reserves — general fund balances and rainy day funds — totaled 11.5 percent of annual state spending. These reserves are estimated to decline to 6.7 percent of annual spending by the end of this fiscal year.
Reserves can be particularly important to help states adjust in the early months of a fiscal crisis, but generally are not sufficient to avert the need for substantial budget cuts or tax increases.
Federal Assistance is Needed - Federal assistance can lessen the extent to which states take pro-cyclical actions that can further harm the economy. In the recession in the early part of this decade, the federal government provided $20 billion in fiscal relief in a package enacted in 2003. There were two types of assistance to states: 1) a temporary increase in the federal share of the Medicaid program; and 2) general grants to states, based on population. Each part was for $10 billion. The increased Medicaid match averted even deeper cuts in public health insurance than actually occurred, while the general grants helped prevent cuts in a wide variety of other critical services. The major problem with that assistance was that it was enacted many months after the beginning of the recession, so it was less effective than it could have been in preventing state actions that deepened the economic downturn. The federal government should consider aiding states earlier, rather than waiting until the downturn is nearly over.
Summary - At least twenty-five states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 25 states, specific estimates are available for 22 states and the District of Columbia; the combined deficits of these 22 states plus the District of Columbia are expected to total at least $39 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.
The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.
The vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.
The Center on Budget and Policy Priorities currently is monitoring state fiscal reports and is in touch with state officials and/or relevant state nonprofit organizations in the 50 states and DC.
The fiscal situation appears to be as follows.
· Over half of the states are anticipating budget problems.
· The 22 states in which revenues are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arizona, California, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $38.8 to $40.5 billion, averaging 8.8 – 9.2 percent of these states’ general fund budgets. (See Table 1.)
· Another three states face budget shortfalls that will need to be closed for fiscal year 2009, but information on the size of those deficits is not available. They are Louisiana, Michigan, and Mississippi. Analysts in three other states — Connecticut, Missouri, and Texas — are projecting budget gaps a little further down the road, in FY2010 and beyond.
This brings the total number of states identified as facing budget gaps to 28 — more than half of all states. The remaining 22 states did not foresee FY2009 budget gaps at the time of the survey either because their budgets remain strong or because they have not yet prepared updated revenue and spending projections for fiscal year 2009. The list of states facing budget gaps is likely to grow as additional state budgets are released in preparation for the upcoming legislative session.
Some mineral-rich states — such as New Mexico, Alaska, and Montana — are seeing revenue growth as a result of high oil prices. Other regions’ economies are less affected by the national economic problems. For example, states with high levels of farm exports are benefiting from the high price of corn and soybeans and the falling value of the dollar. This does not mean, however, that local governments in those states will escape fiscal stress. Some states with mineral revenues or farm exports have been affected by the housing bubble and could face widespread local government deficits.
In states facing budget gaps, the consequences could be severe — for residents as well as the economy. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Even if the economy does not fall into a recession as it did in the earlier part of this decade, actions will have to be taken to close the budget gaps states are now identifying. The experience of the last recession is instructive as to what kinds of actions states may take.
· Cuts in services like health and education. In the last recession, some 34 states cut eligibility for public health programs, causing well over 1 million people to lose health coverage, and at least 23 states cut eligibility for child care subsidies or otherwise limited access to child care. In addition, 34 states cut real per-pupil aid to school districts for K-12 education between 2002 and 2004, resulting in higher fees for textbooks and courses, shorter school days, fewer personnel, and reduced transportation.
· Tax increases. Tax increases may be needed to prevent the types of service cuts described above. However, the taxes states often raise during economic downturns are regressive — that is, they fall most heavily on lower-income residents.
· Cuts in local services or increases in local taxes. While the property tax is usually the most stable revenue source during an economic downturn, that is not the case now. If property tax revenues decline because of the bursting of the housing bubble, localities and schools will either have to get more aid from the state — a difficult proposition when states themselves are running deficits — or reduce expenditures on schools, public safety, and other services.
Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend.
The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.
States Have Restrained Spending and Accumulated Rainy Day Funds - Many states have never fully recovered from the fiscal crisis in the early part of the decade. This fact heightens the potential impact on public services of the deficits states are now projecting.
State expenditures fell sharply relative to the economy during the 2001 recession, and for all states combined they remain below the FY2001 level. (See Figure 1.) In 18 states, general fund spending for FY2008 — six years into the economic recovery — remains below pre-recession levels as a share of the gross domestic product.
In a number of states the reductions made during the downturn in education, higher education, health coverage, and child care remain in effect. These important public services will suffer even more if states turn to budget cuts to close the new budget gaps they now anticipate.
One way states can avoid making deep reductions in services during a recession is to build up rainy day funds and other reserves. At the end of FY2006, state reserves — general fund balances and rainy day funds — totaled 11.5 percent of annual state spending. These reserves are estimated to decline to 6.7 percent of annual spending by the end of this fiscal year.
Reserves can be particularly important to help states adjust in the early months of a fiscal crisis, but generally are not sufficient to avert the need for substantial budget cuts or tax increases.
Federal Assistance is Needed - Federal assistance can lessen the extent to which states take pro-cyclical actions that can further harm the economy. In the recession in the early part of this decade, the federal government provided $20 billion in fiscal relief in a package enacted in 2003. There were two types of assistance to states: 1) a temporary increase in the federal share of the Medicaid program; and 2) general grants to states, based on population. Each part was for $10 billion. The increased Medicaid match averted even deeper cuts in public health insurance than actually occurred, while the general grants helped prevent cuts in a wide variety of other critical services. The major problem with that assistance was that it was enacted many months after the beginning of the recession, so it was less effective than it could have been in preventing state actions that deepened the economic downturn. The federal government should consider aiding states earlier, rather than waiting until the downturn is nearly over.
Tuesday, April 8, 2008
Families Helped by Child Tax Credit Expansion Work Hard in Low-Paying Jobs
[A MESSAGE FROM THE CENTER FOR BUDGET AND POLICY PRIORITIES]
Nursing Home Aides, Cooks, Pre-School Teachers & Construction Workers Would Get a Boost
by Sharon Parrott and Arloc Sherman
The House AMT “patch” bill (H.R. 3996) would expand the Child Tax Credit by lowering the earnings threshold that families must meet to qualify for the refundable portion of the credit. Under the bill, law, by contrast, families must have earnings above $12,050 in 2008 to qualify for the refundable child tax credit.
According to the Tax Policy Center, this provision would benefit 13 million children — including
2.9 million children who would become newly eligible for the benefit and 10.1 million children who would see their CTC increased due to this provision. Families that are “newly eligible” are those with incomes between $8,500 and $12,050. A broader group of low-income families would see their
CTC increase as a result of this provision, because the size of their credit is based on the amount by which the family’s earnings exceed the threshold.
Who are these families that would benefit? Census data provides important information about these families and the jobs the parents hold:
• Most of the children helped live in families in which a parent works throughout the year. Some 70 percent of the children who would benefit live in families in which a parent works 30 or more hours per week for at least 50 weeks during the year. A majority of the remaining families experienced periods of unemployment during the year, but when they were employed, worked at least 30 hours per week.
• Many of the children helped live in families that include individuals with disabilities.
Nearly one in ten children — 1.1 million children — who would benefit live in a family where either a parent or a child has a disability. An expanded CTC would provide assistance to these families in which parents struggle to maintain jobs and meet the health and other expenses they incur due to the disability.
• Parents who would be assisted work in a broad range of low paying jobs; many perform difficult jobs that provide critical services, like caring for the elderly or teaching young children.
• 480,000 parents provide health care services to the elderly or the ill as nursing home workers, home health aides, personal care assistants, medical assistants, and other low paid health care professionals.
• 240,000 parents provide child care, serve as teaching assistants, or are preschool or kindergarten teachers.
• 310,000 parents earn a living by cleaning or maintaining the grounds of homes, office buildings, schools, or other community institutions.
• 410,000 parents work as cashiers in grocery stores and a broad array of other businesses.
• 470,000 parents work as cooks, waiters or waitresses, or assist cooks with food preparation.
• 360,000 parents earn a living as construction workers, carpenters, or painters.
• 120,000 parents work as laborers in the agriculture sector.
All of the figures presented here are Center for Budget and Policy Priorities calculations based on the March 2006 Current Population Survey.
Nursing Home Aides, Cooks, Pre-School Teachers & Construction Workers Would Get a Boost
by Sharon Parrott and Arloc Sherman
The House AMT “patch” bill (H.R. 3996) would expand the Child Tax Credit by lowering the earnings threshold that families must meet to qualify for the refundable portion of the credit. Under the bill, law, by contrast, families must have earnings above $12,050 in 2008 to qualify for the refundable child tax credit.
According to the Tax Policy Center, this provision would benefit 13 million children — including
2.9 million children who would become newly eligible for the benefit and 10.1 million children who would see their CTC increased due to this provision. Families that are “newly eligible” are those with incomes between $8,500 and $12,050. A broader group of low-income families would see their
CTC increase as a result of this provision, because the size of their credit is based on the amount by which the family’s earnings exceed the threshold.
Who are these families that would benefit? Census data provides important information about these families and the jobs the parents hold:
• Most of the children helped live in families in which a parent works throughout the year. Some 70 percent of the children who would benefit live in families in which a parent works 30 or more hours per week for at least 50 weeks during the year. A majority of the remaining families experienced periods of unemployment during the year, but when they were employed, worked at least 30 hours per week.
• Many of the children helped live in families that include individuals with disabilities.
Nearly one in ten children — 1.1 million children — who would benefit live in a family where either a parent or a child has a disability. An expanded CTC would provide assistance to these families in which parents struggle to maintain jobs and meet the health and other expenses they incur due to the disability.
• Parents who would be assisted work in a broad range of low paying jobs; many perform difficult jobs that provide critical services, like caring for the elderly or teaching young children.
• 480,000 parents provide health care services to the elderly or the ill as nursing home workers, home health aides, personal care assistants, medical assistants, and other low paid health care professionals.
• 240,000 parents provide child care, serve as teaching assistants, or are preschool or kindergarten teachers.
• 310,000 parents earn a living by cleaning or maintaining the grounds of homes, office buildings, schools, or other community institutions.
• 410,000 parents work as cashiers in grocery stores and a broad array of other businesses.
• 470,000 parents work as cooks, waiters or waitresses, or assist cooks with food preparation.
• 360,000 parents earn a living as construction workers, carpenters, or painters.
• 120,000 parents work as laborers in the agriculture sector.
All of the figures presented here are Center for Budget and Policy Priorities calculations based on the March 2006 Current Population Survey.
Families Helped by Child Tax Credit Expansion Work Hard in Low-Paying Jobs
[A MESSAGE FROM THE CENTER FOR BUDGET AND POLICY PRIORITIES]
Nursing Home Aides, Cooks, Pre-School Teachers & Construction Workers Would Get a Boost
by Sharon Parrott and Arloc Sherman
The House AMT “patch” bill (H.R. 3996) would expand the Child Tax Credit by lowering the earnings threshold that families must meet to qualify for the refundable portion of the credit. Under the bill, law, by contrast, families must have earnings above $12,050 in 2008 to qualify for the refundable child tax credit.
According to the Tax Policy Center, this provision would benefit 13 million children — including
2.9 million children who would become newly eligible for the benefit and 10.1 million children who would see their CTC increased due to this provision. Families that are “newly eligible” are those with incomes between $8,500 and $12,050. A broader group of low-income families would see their
CTC increase as a result of this provision, because the size of their credit is based on the amount by which the family’s earnings exceed the threshold.
Who are these families that would benefit? Census data provides important information about these families and the jobs the parents hold:
• Most of the children helped live in families in which a parent works throughout the year. Some 70 percent of the children who would benefit live in families in which a parent works 30 or more hours per week for at least 50 weeks during the year. A majority of the remaining families experienced periods of unemployment during the year, but when they were employed, worked at least 30 hours per week.
• Many of the children helped live in families that include individuals with disabilities.
Nearly one in ten children — 1.1 million children — who would benefit live in a family where either a parent or a child has a disability. An expanded CTC would provide assistance to these families in which parents struggle to maintain jobs and meet the health and other expenses they incur due to the disability.
• Parents who would be assisted work in a broad range of low paying jobs; many perform difficult jobs that provide critical services, like caring for the elderly or teaching young children.
• 480,000 parents provide health care services to the elderly or the ill as nursing home workers, home health aides, personal care assistants, medical assistants, and other low paid health care professionals.
• 240,000 parents provide child care, serve as teaching assistants, or are preschool or kindergarten teachers.
• 310,000 parents earn a living by cleaning or maintaining the grounds of homes, office buildings, schools, or other community institutions.
• 410,000 parents work as cashiers in grocery stores and a broad array of other businesses.
• 470,000 parents work as cooks, waiters or waitresses, or assist cooks with food preparation.
• 360,000 parents earn a living as construction workers, carpenters, or painters.
• 120,000 parents work as laborers in the agriculture sector.
All of the figures presented here are Center for Budget and Policy Priorities calculations based on the March 2006 Current Population Survey.
Nursing Home Aides, Cooks, Pre-School Teachers & Construction Workers Would Get a Boost
by Sharon Parrott and Arloc Sherman
The House AMT “patch” bill (H.R. 3996) would expand the Child Tax Credit by lowering the earnings threshold that families must meet to qualify for the refundable portion of the credit. Under the bill, law, by contrast, families must have earnings above $12,050 in 2008 to qualify for the refundable child tax credit.
According to the Tax Policy Center, this provision would benefit 13 million children — including
2.9 million children who would become newly eligible for the benefit and 10.1 million children who would see their CTC increased due to this provision. Families that are “newly eligible” are those with incomes between $8,500 and $12,050. A broader group of low-income families would see their
CTC increase as a result of this provision, because the size of their credit is based on the amount by which the family’s earnings exceed the threshold.
Who are these families that would benefit? Census data provides important information about these families and the jobs the parents hold:
• Most of the children helped live in families in which a parent works throughout the year. Some 70 percent of the children who would benefit live in families in which a parent works 30 or more hours per week for at least 50 weeks during the year. A majority of the remaining families experienced periods of unemployment during the year, but when they were employed, worked at least 30 hours per week.
• Many of the children helped live in families that include individuals with disabilities.
Nearly one in ten children — 1.1 million children — who would benefit live in a family where either a parent or a child has a disability. An expanded CTC would provide assistance to these families in which parents struggle to maintain jobs and meet the health and other expenses they incur due to the disability.
• Parents who would be assisted work in a broad range of low paying jobs; many perform difficult jobs that provide critical services, like caring for the elderly or teaching young children.
• 480,000 parents provide health care services to the elderly or the ill as nursing home workers, home health aides, personal care assistants, medical assistants, and other low paid health care professionals.
• 240,000 parents provide child care, serve as teaching assistants, or are preschool or kindergarten teachers.
• 310,000 parents earn a living by cleaning or maintaining the grounds of homes, office buildings, schools, or other community institutions.
• 410,000 parents work as cashiers in grocery stores and a broad array of other businesses.
• 470,000 parents work as cooks, waiters or waitresses, or assist cooks with food preparation.
• 360,000 parents earn a living as construction workers, carpenters, or painters.
• 120,000 parents work as laborers in the agriculture sector.
All of the figures presented here are Center for Budget and Policy Priorities calculations based on the March 2006 Current Population Survey.
Many Cuts Come on Top of Sizable Reductions in Recent Years
THE PRESIDENT'S BUDGET WOULD CUT DEEPLY INTO IMPORTANT PUBLIC SERVICES & ADVERSELY AFFECT STATES
[A MESSAGE FROM THE CENTER ON BUDGET AND POLICY PRIORITIES]
by Sharon Parrott, Kris Cox, Danilo Trisi, and Douglas Rice
The President’s 2009 budget would provide some $20.5 billion less for domestic discretionary programs outside of homeland security — a broad category of programs that includes everything from child care to environmental protection to medical research — than the 2008 level, adjusted for inflation.
The budget calls for reductions in a broad range of services, including some areas that have seen sizable cuts in recent years. For example, the budget would cut child care, environmental protection, and job training — all areas for which funding in 2008 is well below funding earlier in the decade, after adjusting for inflation.
In other areas, the budget does not call for large new cuts, but nor does it reverse sizable cuts that have been made in recent years. K-12 education is such an area. After the No Child Left Behind initiative was enacted, funding for K-12 education increased for several years. Since 2004, however, funding has failed to keep pace with inflation. In 2008, funding for K-12 education is 8.9 percent below the 2004 level, in inflation-adjusted dollars. The President’s proposed funding level falls just short of what would be needed to keep pace with inflation. As a result, under the President's budget, K- 12 funding in 2009 would fall 9.1 percent below the 2004 funding level, adjusted for inflation.
Head Start is another example. Head Start funding has essentially been frozen since 2002, without adjustment for inflation. As a result, when inflation is taken into account, funding in 2008 is 11 percent below the 2002 level. The President’s proposed 2009 funding level falls 12 percent below the 2002 inflation-adjusted level.
As a result, significant additional funding would be needed to restore many programs to the levels in place earlier this decade. For example, in K-12 education alone, an additional $3.7 billion above the President’s 2009 budget request would be needed to restore funding to 2004 levels (after adjustment for inflation). To restore child care and Head Start funding to 2002 inflation-adjusted levels would require an additional $1.4 billion above the President’s budget request.
Many of the proposed cuts in domestic discretionary programs would adversely affect state budgets. A large number of domestic discretionary programs provide funding to states for various types of services such as education, low-income energy assistance, environmental protection, and mass transit. The President’s budget would cut overall funding for domestic discretionary grants to state and local governments by $19.1 billion, as compared to 2008 funding levels adjusted for inflation. (Funding would be $15.1 billion below 2008 funding levels even without adjusting for inflation.)
It is important to note that despite some rhetoric to the contrary, these programs have not grown rapidly in recent years. In 2008, funding for domestic discretionary programs outside homeland security is lower as a share of the economy than it was in 2001. And, between 2002 and 2008, the overall funding level for domestic discretionary programs outside homeland security declined 2.6 percent in real per capita terms.
[A MESSAGE FROM THE CENTER ON BUDGET AND POLICY PRIORITIES]
by Sharon Parrott, Kris Cox, Danilo Trisi, and Douglas Rice
The President’s 2009 budget would provide some $20.5 billion less for domestic discretionary programs outside of homeland security — a broad category of programs that includes everything from child care to environmental protection to medical research — than the 2008 level, adjusted for inflation.
The budget calls for reductions in a broad range of services, including some areas that have seen sizable cuts in recent years. For example, the budget would cut child care, environmental protection, and job training — all areas for which funding in 2008 is well below funding earlier in the decade, after adjusting for inflation.
In other areas, the budget does not call for large new cuts, but nor does it reverse sizable cuts that have been made in recent years. K-12 education is such an area. After the No Child Left Behind initiative was enacted, funding for K-12 education increased for several years. Since 2004, however, funding has failed to keep pace with inflation. In 2008, funding for K-12 education is 8.9 percent below the 2004 level, in inflation-adjusted dollars. The President’s proposed funding level falls just short of what would be needed to keep pace with inflation. As a result, under the President's budget, K- 12 funding in 2009 would fall 9.1 percent below the 2004 funding level, adjusted for inflation.
Head Start is another example. Head Start funding has essentially been frozen since 2002, without adjustment for inflation. As a result, when inflation is taken into account, funding in 2008 is 11 percent below the 2002 level. The President’s proposed 2009 funding level falls 12 percent below the 2002 inflation-adjusted level.
As a result, significant additional funding would be needed to restore many programs to the levels in place earlier this decade. For example, in K-12 education alone, an additional $3.7 billion above the President’s 2009 budget request would be needed to restore funding to 2004 levels (after adjustment for inflation). To restore child care and Head Start funding to 2002 inflation-adjusted levels would require an additional $1.4 billion above the President’s budget request.
Many of the proposed cuts in domestic discretionary programs would adversely affect state budgets. A large number of domestic discretionary programs provide funding to states for various types of services such as education, low-income energy assistance, environmental protection, and mass transit. The President’s budget would cut overall funding for domestic discretionary grants to state and local governments by $19.1 billion, as compared to 2008 funding levels adjusted for inflation. (Funding would be $15.1 billion below 2008 funding levels even without adjusting for inflation.)
It is important to note that despite some rhetoric to the contrary, these programs have not grown rapidly in recent years. In 2008, funding for domestic discretionary programs outside homeland security is lower as a share of the economy than it was in 2001. And, between 2002 and 2008, the overall funding level for domestic discretionary programs outside homeland security declined 2.6 percent in real per capita terms.
New Federal Law Could Worsen State Budget Problems
NEW FEDERAL LAW COULD WORSEN STATE BUDGET PROBLEMS:States Can Protect Revenues by "Decoupling"
2/13/08 By Nicholas Johnson
The federal “economic stimulus” package enacted today not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year. The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens. Some states are already enacting cuts in K-12 education, higher education, health care and human services, among other areas in order to balance their budgets.
The revenue loss results from a provision of the stimulus package known as “bonus depreciation.” Bonus depreciation allows a business to claim an immediate federal tax deduction of up to 50 percent of the cost of new equipment purchases, rather than following the standard accounting approach of depreciating the full cost gradually over the several year useful life of the equipment. Most states’ personal and corporate income taxes are based on federal law. So tax cuts at the federal level that reduce federal taxable income normally reduce state taxable income as well and therefore cost states money.
Because the bonus depreciation provision is retroactive to January 1, 2008, affected states will experience immediate revenue loss in the current fiscal year and the upcoming fiscal year. We estimate that under current state law, some 23 states stand to lose an estimated $1.7 billion in corporate and individual tax revenue in the current and upcoming fiscal years.
There is a way states can protect themselves from this immediate and large revenue loss. States can, at their own option, pass a statute to "decouple" their business depreciation rules from the section of the federal tax code that allows bonus depreciation. During the 2001-04 period, when a similar bonus depreciation provision was in effect, over 30 states fully or partially decoupled from it, with minimal adverse consequences.
What Is Bonus Depreciation? “Bonus depreciation” is a change to the way businesses subtract from their taxable income the cost of purchasing machinery or equipment. Normally, when a business purchases a piece of machinery or equipment, the tax deduction for the cost of the purchase must be spread out over time — up to 20 years, depending on the type of product. (Equipment that is likely to break down or become obsolete more quickly is more rapidly depreciated than more durable equipment. Real estate has an even longer depreciation schedule, and is not eligible for bonus depreciation.) Contrary to the general accounting rules that match the deductions to the approximate useful life of the machine or equipment,, “bonus depreciation” allows businesses that purchase machinery or equipment in 2008 to deduct 50 percent of the cost right away. The remaining 50 percent is then depreciated over the normal depreciation schedule.[1]
The “bonus” applies to machinery and equipment placed in service anytime in calendar year 2008, meaning that businesses can begin immediately to claim the deduction in their estimated tax payments. It expires December 31, 2008, by which time it will have reduced federal taxes on profitable businesses by an estimated $49.5 billion.
Why Are Some States Affected, and Others Are Not? A state might lose revenue due to the new federal “bonus depreciation” law for either of two reasons.
· A state’s tax code might be written in such a way that it automatically reflects any change in federal tax law. This is sometimes called “rolling conformity.” (Note that some states in this category decoupled from bonus depreciation in 2001-04, but the legislation to decouple was written so narrowly that it does not automatically apply to the 2008 bonus depreciation.)
· A state’s tax code might be written in such a way that it reflects the federal tax code as it existed on a particular date, but the practice in the state is that the date is routinely moved forward to incorporate federal tax changes. Specifically, if the state moved the date forward in order to conform to “bonus depreciation” in 2001-04, it is reasonable to expect that — absent specific efforts to “decouple” — the state will incorporate bonus depreciation now and hence lose revenue.
States in either of those categories are shown in Table 1 as being likely to lose revenue. Other states are protected automatically from revenue loss due to “bonus depreciation.” In most cases, this is either because they have fixed-date conformity for their tax code as a whole (or for depreciation provisions in particular), or because they have a specific provision that requires businesses to “add-back” any benefit they receive from Section 168(k) — the section of the federal tax law that allows bonus depreciation.
Such states are shown as having no revenue loss in Table 1. However, it is possible that some of those states might consider enacting legislation that would bring their codes into conformity with the new federal stimulus law and hence lead to lost revenue. Table 2 at the end of this paper provides the potential revenue loss were all states to choose to conform — an unlikely scenario in most states, but perhaps plausible in a few.
How Can States Decouple From Bonus Depreciation? The last time the federal government enacted “bonus depreciation,” in 2002-2004, over 30 states amended their state laws to prevent revenue loss. (Then, as now, states were facing significant budget shortfalls due to an economic slowdown, and could not afford additional loss of revenues.)
The state statutes to decouple from 2002-04 bonus depreciation typically were quite simple: They merely required businesses to calculate their taxable income as if bonus depreciation had not been enacted. Some are more detailed about the steps involved, requiring businesses to add back to their federal taxable income the amount of the bonus depreciation deduction, and then allowing them to subtract the amount of depreciation they would normally have claimed. A few states use variations on the latter approach, for instance requiring that the “bonus depreciation” deduction be spread out over a number of years, which roughly mirrors the normal depreciation law. There is no obvious advantage to any one of these approaches.
However, states should decouple in such a way that the decoupling applies to any future bonus depreciation beyond 2008 — or even better in such a way that the decoupling applies to any future changes in any part of the federal tax law. This would prevent any future federal tax law change from automatically reducing state revenues.
What Are The Short-Term and Long-Term Revenue Implications of Decoupling from Bonus Depreciation? The federal government expects to lose $49.5 billion in federal fiscal years 2008 and 2009 (combined) as a result of bonus depreciation. If the affected states face a proportionately equivalent revenue loss, as it is reasonable to expect they would, this represents potential revenue loss of approximately $1.7 billion, as shown in Table 1.[2] It is somewhat unclear what portion of this revenue would fall in state fiscal year 2008 and what portion would fall in state fiscal year 2009. But in most states the distinction is not very important, because any shortfall in 2008 would have to be made up in 2009.
If the federal government allows bonus depreciation to expire on December 31, 2008, as it is now scheduled to do, then no revenue loss would be expected to occur after 2009. However, there is no guarantee that bonus depreciation will expire on schedule. In the early 2000s, for instance, bonus depreciation was enacted and then a year later extended; in the end bonus depreciation was in effect for more than three years. Moreover, 2008 is an election year, so additional “stimulus” tax cuts (such as an extension of bonus depreciation) are entirely possible, especially if the economy does not recover rapidly.
Some proponents of conforming to bonus depreciation may argue that bonus depreciation is merely a timing shift. A state that loses money from bonus depreciation in 2008 and 2009 might expect to begin recouping a portion of the revenue loss beginning in 2010, because of the way bonus depreciation interacts with the regular depreciation schedule. Since more of the purchase cost is depreciated in the first year, less is depreciated in subsequent years.
This timing shift is likely to be of little solace to states facing budget problems now. Moreover, even in the longer term, states should be suspicious of the “recoupment” argument for the following reasons:
· As noted above, it is not clear whether in fact the federal government will allow bonus depreciation to expire as scheduled. If it does not, recoupment would be substantially delayed.
· Although the recoupment of revenue could begin as early as 2010, the bulk of it would occur after 2011. (Some of it could be recouped as far into the future as 19 years from now, or perhaps never, if corporations go out of business before making up the lost revenue.) This is of little help to states that are legally required to balance their budgets in 2008, 2009, and 2010 as well as all subsequent years, as nearly all states are.
· Allowing corporations to pay less taxes now, based on the premise that they will pay an equivalent amount in increased taxes five, ten or 15 years into the future, is equivalent to giving those corporations an interest-free loans. Like any interest-free loan that gets repaid, there is a hidden cost to the borrower, in this case the state. (As a recent Wall Street Journal article noted, the cost of this “interest-free loan” that results from bonus depreciation is not reflected in the official Congressional cost estimate due to a loophole in federal budget rules.[3])
What Are The Short- and Long-Term Economic Implications for A State of Decoupling from Bonus Depreciation?
Of the measures considered by Congress to stimulate the economy, bonus depreciation is one of the least effective, according to the Congressional Budget Office. Moody’s Economy.com found that for every dollar spent on bonus depreciation, the economy would grow by just 27 cents. Part of the reason this stimulus strategy is considered relatively ineffective is that studies of the 2001-04 bonus depreciation program found that it did little to stimulate business investment. Most of the benefit went to firms that were planning to buy new equipment anyway. A better approach to stimulating a state economy would be for a state to decouple from the federal change and use the revenue to balance the budget — thereby reducing the need for the state to cut spending or raise new revenues. In contrast to the relatively weak stimulus effect of bonus depreciation, Moody’s found that each dollar spent mitigating state budget shortfalls could yield $1.36 in increased economic growth.
2/13/08 By Nicholas Johnson
The federal “economic stimulus” package enacted today not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year. The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens. Some states are already enacting cuts in K-12 education, higher education, health care and human services, among other areas in order to balance their budgets.
The revenue loss results from a provision of the stimulus package known as “bonus depreciation.” Bonus depreciation allows a business to claim an immediate federal tax deduction of up to 50 percent of the cost of new equipment purchases, rather than following the standard accounting approach of depreciating the full cost gradually over the several year useful life of the equipment. Most states’ personal and corporate income taxes are based on federal law. So tax cuts at the federal level that reduce federal taxable income normally reduce state taxable income as well and therefore cost states money.
Because the bonus depreciation provision is retroactive to January 1, 2008, affected states will experience immediate revenue loss in the current fiscal year and the upcoming fiscal year. We estimate that under current state law, some 23 states stand to lose an estimated $1.7 billion in corporate and individual tax revenue in the current and upcoming fiscal years.
There is a way states can protect themselves from this immediate and large revenue loss. States can, at their own option, pass a statute to "decouple" their business depreciation rules from the section of the federal tax code that allows bonus depreciation. During the 2001-04 period, when a similar bonus depreciation provision was in effect, over 30 states fully or partially decoupled from it, with minimal adverse consequences.
What Is Bonus Depreciation? “Bonus depreciation” is a change to the way businesses subtract from their taxable income the cost of purchasing machinery or equipment. Normally, when a business purchases a piece of machinery or equipment, the tax deduction for the cost of the purchase must be spread out over time — up to 20 years, depending on the type of product. (Equipment that is likely to break down or become obsolete more quickly is more rapidly depreciated than more durable equipment. Real estate has an even longer depreciation schedule, and is not eligible for bonus depreciation.) Contrary to the general accounting rules that match the deductions to the approximate useful life of the machine or equipment,, “bonus depreciation” allows businesses that purchase machinery or equipment in 2008 to deduct 50 percent of the cost right away. The remaining 50 percent is then depreciated over the normal depreciation schedule.[1]
The “bonus” applies to machinery and equipment placed in service anytime in calendar year 2008, meaning that businesses can begin immediately to claim the deduction in their estimated tax payments. It expires December 31, 2008, by which time it will have reduced federal taxes on profitable businesses by an estimated $49.5 billion.
Why Are Some States Affected, and Others Are Not? A state might lose revenue due to the new federal “bonus depreciation” law for either of two reasons.
· A state’s tax code might be written in such a way that it automatically reflects any change in federal tax law. This is sometimes called “rolling conformity.” (Note that some states in this category decoupled from bonus depreciation in 2001-04, but the legislation to decouple was written so narrowly that it does not automatically apply to the 2008 bonus depreciation.)
· A state’s tax code might be written in such a way that it reflects the federal tax code as it existed on a particular date, but the practice in the state is that the date is routinely moved forward to incorporate federal tax changes. Specifically, if the state moved the date forward in order to conform to “bonus depreciation” in 2001-04, it is reasonable to expect that — absent specific efforts to “decouple” — the state will incorporate bonus depreciation now and hence lose revenue.
States in either of those categories are shown in Table 1 as being likely to lose revenue. Other states are protected automatically from revenue loss due to “bonus depreciation.” In most cases, this is either because they have fixed-date conformity for their tax code as a whole (or for depreciation provisions in particular), or because they have a specific provision that requires businesses to “add-back” any benefit they receive from Section 168(k) — the section of the federal tax law that allows bonus depreciation.
Such states are shown as having no revenue loss in Table 1. However, it is possible that some of those states might consider enacting legislation that would bring their codes into conformity with the new federal stimulus law and hence lead to lost revenue. Table 2 at the end of this paper provides the potential revenue loss were all states to choose to conform — an unlikely scenario in most states, but perhaps plausible in a few.
How Can States Decouple From Bonus Depreciation? The last time the federal government enacted “bonus depreciation,” in 2002-2004, over 30 states amended their state laws to prevent revenue loss. (Then, as now, states were facing significant budget shortfalls due to an economic slowdown, and could not afford additional loss of revenues.)
The state statutes to decouple from 2002-04 bonus depreciation typically were quite simple: They merely required businesses to calculate their taxable income as if bonus depreciation had not been enacted. Some are more detailed about the steps involved, requiring businesses to add back to their federal taxable income the amount of the bonus depreciation deduction, and then allowing them to subtract the amount of depreciation they would normally have claimed. A few states use variations on the latter approach, for instance requiring that the “bonus depreciation” deduction be spread out over a number of years, which roughly mirrors the normal depreciation law. There is no obvious advantage to any one of these approaches.
However, states should decouple in such a way that the decoupling applies to any future bonus depreciation beyond 2008 — or even better in such a way that the decoupling applies to any future changes in any part of the federal tax law. This would prevent any future federal tax law change from automatically reducing state revenues.
What Are The Short-Term and Long-Term Revenue Implications of Decoupling from Bonus Depreciation? The federal government expects to lose $49.5 billion in federal fiscal years 2008 and 2009 (combined) as a result of bonus depreciation. If the affected states face a proportionately equivalent revenue loss, as it is reasonable to expect they would, this represents potential revenue loss of approximately $1.7 billion, as shown in Table 1.[2] It is somewhat unclear what portion of this revenue would fall in state fiscal year 2008 and what portion would fall in state fiscal year 2009. But in most states the distinction is not very important, because any shortfall in 2008 would have to be made up in 2009.
If the federal government allows bonus depreciation to expire on December 31, 2008, as it is now scheduled to do, then no revenue loss would be expected to occur after 2009. However, there is no guarantee that bonus depreciation will expire on schedule. In the early 2000s, for instance, bonus depreciation was enacted and then a year later extended; in the end bonus depreciation was in effect for more than three years. Moreover, 2008 is an election year, so additional “stimulus” tax cuts (such as an extension of bonus depreciation) are entirely possible, especially if the economy does not recover rapidly.
Some proponents of conforming to bonus depreciation may argue that bonus depreciation is merely a timing shift. A state that loses money from bonus depreciation in 2008 and 2009 might expect to begin recouping a portion of the revenue loss beginning in 2010, because of the way bonus depreciation interacts with the regular depreciation schedule. Since more of the purchase cost is depreciated in the first year, less is depreciated in subsequent years.
This timing shift is likely to be of little solace to states facing budget problems now. Moreover, even in the longer term, states should be suspicious of the “recoupment” argument for the following reasons:
· As noted above, it is not clear whether in fact the federal government will allow bonus depreciation to expire as scheduled. If it does not, recoupment would be substantially delayed.
· Although the recoupment of revenue could begin as early as 2010, the bulk of it would occur after 2011. (Some of it could be recouped as far into the future as 19 years from now, or perhaps never, if corporations go out of business before making up the lost revenue.) This is of little help to states that are legally required to balance their budgets in 2008, 2009, and 2010 as well as all subsequent years, as nearly all states are.
· Allowing corporations to pay less taxes now, based on the premise that they will pay an equivalent amount in increased taxes five, ten or 15 years into the future, is equivalent to giving those corporations an interest-free loans. Like any interest-free loan that gets repaid, there is a hidden cost to the borrower, in this case the state. (As a recent Wall Street Journal article noted, the cost of this “interest-free loan” that results from bonus depreciation is not reflected in the official Congressional cost estimate due to a loophole in federal budget rules.[3])
What Are The Short- and Long-Term Economic Implications for A State of Decoupling from Bonus Depreciation?
Of the measures considered by Congress to stimulate the economy, bonus depreciation is one of the least effective, according to the Congressional Budget Office. Moody’s Economy.com found that for every dollar spent on bonus depreciation, the economy would grow by just 27 cents. Part of the reason this stimulus strategy is considered relatively ineffective is that studies of the 2001-04 bonus depreciation program found that it did little to stimulate business investment. Most of the benefit went to firms that were planning to buy new equipment anyway. A better approach to stimulating a state economy would be for a state to decouple from the federal change and use the revenue to balance the budget — thereby reducing the need for the state to cut spending or raise new revenues. In contrast to the relatively weak stimulus effect of bonus depreciation, Moody’s found that each dollar spent mitigating state budget shortfalls could yield $1.36 in increased economic growth.
December Unemployment Rate
FROM THE CENTER ON BUDGET AND POLICY PRIORITIES:
STATEMENT BY CHAD STONE, CHIEF ECONOMIST,ON THE LABOR DEPARTMENT'S DECEMBER UNEMPLOYMENT REPORT
Today's report shows that the economy is entering 2008 with a weakening labor market. Employers expanded their payrolls by a meager 18,000 jobs in December, private payrolls actually shrank by 13,000 jobs, and the unemployment rate rose from 4.7 to 5.0 percent. These data are very disappointing, but even so they do not mean that the economy is currently in recession, and Congress should not rush to judgment on the need to enact a fiscal stimulus package that, if not carefully designed, could do more harm than good.
Today's report also is a strong reminder that before the next recession comes, Congress needs to strengthen the Unemployment Insurance (UI) system, which cushions the impact on consumers of the economy's ups and downs. The percentage of unemployed workers who have remained without a job for more than 26 weeks (the normal duration for regular unemployment benefits) and continue to search for work is considerably higher than on the eve of the last recession. In December 2007, 17.5 percent of all unemployed workers were long-term unemployed, compared with just 11.1 percent in March 2001.
The federal government has temporarily extended unemployment benefits in every recent recession, but often not until well after the need has become evident. Having an extended benefits program ready to go if labor market conditions deteriorate significantly would be a prudent contingent stimulus policy.
In addition, longstanding gaps in the UI system leave many workers ineligible even for regular UI benefits when they lose their jobs (and hence for any extended benefits in a recession). In October 2007, the House passed a long-overdue UI reform measure that would provide states with incentives to modernize their UI systems so more female, low-income, and part-time workers who lose their jobs through no fault of their own can qualify.
The House bill reflects recommendations made over a decade ago by a bipartisan, congressionally chartered commission. And it is fully paid for through a renewal of the federal UI surtax, a step President Bush called for in his last budget.
The Senate should act expeditiously on this or similar legislation when it returns this month, so these reforms are in place to reduce hardship in the next recession, whenever that occurs.
STATEMENT BY CHAD STONE, CHIEF ECONOMIST,ON THE LABOR DEPARTMENT'S DECEMBER UNEMPLOYMENT REPORT
Today's report shows that the economy is entering 2008 with a weakening labor market. Employers expanded their payrolls by a meager 18,000 jobs in December, private payrolls actually shrank by 13,000 jobs, and the unemployment rate rose from 4.7 to 5.0 percent. These data are very disappointing, but even so they do not mean that the economy is currently in recession, and Congress should not rush to judgment on the need to enact a fiscal stimulus package that, if not carefully designed, could do more harm than good.
Today's report also is a strong reminder that before the next recession comes, Congress needs to strengthen the Unemployment Insurance (UI) system, which cushions the impact on consumers of the economy's ups and downs. The percentage of unemployed workers who have remained without a job for more than 26 weeks (the normal duration for regular unemployment benefits) and continue to search for work is considerably higher than on the eve of the last recession. In December 2007, 17.5 percent of all unemployed workers were long-term unemployed, compared with just 11.1 percent in March 2001.
The federal government has temporarily extended unemployment benefits in every recent recession, but often not until well after the need has become evident. Having an extended benefits program ready to go if labor market conditions deteriorate significantly would be a prudent contingent stimulus policy.
In addition, longstanding gaps in the UI system leave many workers ineligible even for regular UI benefits when they lose their jobs (and hence for any extended benefits in a recession). In October 2007, the House passed a long-overdue UI reform measure that would provide states with incentives to modernize their UI systems so more female, low-income, and part-time workers who lose their jobs through no fault of their own can qualify.
The House bill reflects recommendations made over a decade ago by a bipartisan, congressionally chartered commission. And it is fully paid for through a renewal of the federal UI surtax, a step President Bush called for in his last budget.
The Senate should act expeditiously on this or similar legislation when it returns this month, so these reforms are in place to reduce hardship in the next recession, whenever that occurs.
Marginal Rate Reductions and Extensions of Tax Cuts Expiring in 2010 Not the Right Medicine for the Economy’s Current Ills...
The following is a message from the Center on Budget and Policy Priorities. It helps us to understand how economic policy affects us in the long term. This is merely an overview. A detailed analysis can be found on their website @ http://www.cbpp.org/1-15-08tax.htm.
By Aviva Aron-Dine
With today's release of CBO's report, "Options for Responding to Short-Term Economic Weakness", we wanted to draw your attention to the Center's new analysis which finds that:
· Reductions in personal and corporate marginal income tax rates would do little to stimulate the economy — far less than other options like extending unemployment benefits, providing aid to states, temporarily increasing food stamp benefits, or providing tax rebates to low- and moderate-income households.
· Marginal rate cuts have low “bang-for-the-buck” as stimulus because they target dollars to groups unlikely to spend them quickly. Across-the-board cuts in personal income tax rates overwhelmingly benefit upper-income households, while corporate rate cuts direct funds to profitable corporations but offer no incentive for these businesses to boost investment or production in the near term.
· Extending the 2001 and 2003 tax cuts would have virtually no stimulus effect, since it would not put a dollar in anyone’s pocket until 2011. Meanwhile, it would substantially worsen the nation’s budget outlook, likely damaging the economy in the long run and possibly even depressing investment in the short run if it caused long-term interest rates to rise.
· If policymakers want to use the tax system to provide economic stimulus, rebate checks targeted to low- and moderate-income households are among the best available options. Contrary to a common misconception, the available evidence indicates that the rebates delivered to households during the 2001 recession were reasonably effective at boosting demand and stimulating the economy.
By Aviva Aron-Dine
With today's release of CBO's report, "Options for Responding to Short-Term Economic Weakness", we wanted to draw your attention to the Center's new analysis which finds that:
· Reductions in personal and corporate marginal income tax rates would do little to stimulate the economy — far less than other options like extending unemployment benefits, providing aid to states, temporarily increasing food stamp benefits, or providing tax rebates to low- and moderate-income households.
· Marginal rate cuts have low “bang-for-the-buck” as stimulus because they target dollars to groups unlikely to spend them quickly. Across-the-board cuts in personal income tax rates overwhelmingly benefit upper-income households, while corporate rate cuts direct funds to profitable corporations but offer no incentive for these businesses to boost investment or production in the near term.
· Extending the 2001 and 2003 tax cuts would have virtually no stimulus effect, since it would not put a dollar in anyone’s pocket until 2011. Meanwhile, it would substantially worsen the nation’s budget outlook, likely damaging the economy in the long run and possibly even depressing investment in the short run if it caused long-term interest rates to rise.
· If policymakers want to use the tax system to provide economic stimulus, rebate checks targeted to low- and moderate-income households are among the best available options. Contrary to a common misconception, the available evidence indicates that the rebates delivered to households during the 2001 recession were reasonably effective at boosting demand and stimulating the economy.
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