Quick Budget Thoughts/Predictions

The Budget that both houses of Congress agreed upon last night features prominently two things in particular.

1. $106 billion in tax cuts.
2. The aim "to trim the growth of Medicaid by $10 billion over five years.

To my mind, this is irresponsible government. The Feds have dramatically reduced tax rates for the wealthiest Americans while cutting services for people who need them.

So, a couple predictions: The deficit will not be cut in half over the next five years, unfortunately. Health care costs will continue to rise by 12-14%, if not more, over the next several years.

Now, outside the beltway, politicians know that people want health care reform and need help keeping the costs down. The states, already in financial trouble, will need to do what the Feds won't and find a real way to hold costs down for their citizens, while providing access to quality care. Generally speaking, this means that there will be an increasingly noticeable shift towards state governments bearing the financial burden, meaning greater weight on state sales and property tax revenues--as opposed to federal income tax revenues.

In this light, the budget cuts should be seen more as a shirking of responsibility than as fiscal austerity.

News Flash: Reckless Tax Cuts May Lead To Deficits

Alan Greenspan is now worried about the regular, growing, yearly federal budget deficits and is shocked (Shocked!) that anyone might blame him, at least in part, for bringing them on.

His testimony was absurd in that it spoke of the need to cut funding to crucial programs as the only way out of structural deficits. Thing is, he advocated for both major rounds of Bush tax cuts -- only now admitting that his forecasts may have been a bit off the mark.

Of course, on a certain level he is right: The amount of money that the government spends on programs should bear some resemblance to the amount of revenue that it collects. However, in the year 2005, talking about revenue shortfalls out of the context of the last four and a half years strains credibility.

Entitlement Programs

The many hidden entitlements in the federal tax code for big corporations are getting less hidden everyday. Ways and Means Committee Chairman Bill Thomas (R-CA) has pushed through tax breaks worth about $8 billion over 10 years that go straight to big energy companies. An underwhelming 6% of that total is aimed at encouraging development of renewable resources.

Now, even the President understands that doing this under the guise of offering incentives to the industry makes no sense. Last week, before an audience of newspaper editors, Bush had this to say:

I will tell you with $55 oil we don't need incentives to oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent.

Enough to make environmental activists tear up, right? We sure do need "a strategy in place that will help this country over time become less dependent" on crude oil. Sadly, the House Bill has nothing to do with that. Instead, the bill gives more tax breaks to companies, like ExxonMobil, that had record-setting boom years in 2004. In recent years, big business, and energy companies in particular, have seen their tax bills on the decline-- and this bill would only exacerbate this trend.

How does this all fit together? Well, next time a right-winger tells you that we can't afford Social Security and Medicare and that progressives don't have a plan to fix that, laugh them out of the room. Their boys on Capitol Hill are giving away the farm.

We've witnessed a deadly trend over the last five years: Deficits mount, funding for key programs reach the "crisis" point, and Republicans provide billion dollar kick-backs to the biggest corporations and richest citizens. For more details, see Jim Bunning's Social Security scheme and the House on the Estate Tax.

Update: Bill Thomas raised about $126,000 from people and PACs from the energy and natural resource extraction industry in the last election cycle. That amount is especially impressive when you consider that he wasn't facing an opponent.

Even in these uncertain times, big energy (ok, this isn't limited to just one industry) can count on Bill Thomas to provide solid returns on their investments.

Bush Claims Status as an Urban Cowboy

President Bush claims to live in Chicago for tax purposes.

Bush, Cheney Give Themselves Bonuses

Lots of folks lobby Congress. But very few are this effective at getting what they want. An April 15 Citizens for Tax Justice analysis marks Tax Day by showing that President Bush and Vice President Cheney made out like bandits this year thanks to the tax cuts they have pushed through.

Good coverage of this release from the New York Times is here.

Tax Freedom Day?

April 15 sometimes brings out the worst in people. For a long time, the Tax Foundation has been annually publicizing "Tax Freedom Day," billed as the day of the year when Americans have earned enough to pay all their taxes. (This year it's April 17, they say.) Citizens for Tax Justice debunked the Tax Freedom Day concept quite effectively almost a decade ago, and the Center on Budget and Policy Priorities now responds to the Tax Foundation report annually, with a good summary explaining why the "Tax Freedom Day" concept is silly and inaccurate when it's used as an estimate of middle-class tax burdens. Of course, this doesn't stop the Tax Foundation from publishing the same misleading statistics every year-- and certainly doesn't stop more gullible members of the media from reporting these statistics verbatim.

So here's a quick roll call of newspapers that did especially well and especially poorly in reporting this issue.

Boos:
1) Newsday reported this data with no caveats whatsoever. Their coverage is here and here.
2) The Chattanooga Times Free Press regurgitates the Tax Foundation line with no critical analysis in an editorial. The editors note simperingly that "thanks to federal income tax cuts championed by President George W. Bush, [Tax Freedom Day] is still coming 16 days earlier than it came late in the administration of President Bill Clinton," and cite the Tax Foundation data as proof that "It is especially clear that taxes are still too high." The Free Press doesn't make their content available to non-subscribers, so you can't read it-- but it's no great loss.
3) In what appears (on their on-line edition) to be an editorial, the Macon Telegraph cites the Tax Foundation data approvingly, decrying the "unfair share" we all pay to Uncle Sam. The Telegraph absolves itself a little tiny bit by noting that "the machinations, computations, calculations and guesswork that get us to that final tax bite number is more troubling than writing the check itself," but then throws it all away by citing tax complexity as a reason to enact a flat tax. I'd rank them #1 except that I want to reserve that distinction for a newspaper someone has heard of.
4) A brief yet irresponsible editorial in the Belleville News-Democrat gives the basic TF spiel, then reminds us that "it will be worse if Congress refuses to make Bush's tax cuts permanent."
5) The Deseret Morning News takes two swings at this one. A member of the paper's editorial board page cites the TF data approvingly-- then calls it "boring statistics" and asserts that "It's enough to know that you spend about a third of your time working to pay your government." Another article gives the TF data such fawning attention that it would probably rank #1 for ineptness all by itself. Here's the critical evaluation: "The Tax Foundation study was based on an analysis of incomes related to Net National Product. Other groups use different statistical approaches, including personal income and gross domestic product. The differences in the results are usually around 1 percent, which is "fairly trivial," Hodge said." What the crack research staff at the Morning News has done here is to read the section of the TF's own report where they give their own (very misleading) version of what critical people have said, and then just regurgigate the TF language. First prize!
6) The Atlanta Journal Constitution presents the Tax Foundation data USA-Style, with virtually no analysis of any kind, here.
7) South Carolina's "The State" newspaper gets bonus points for not making a big rhetorical deal about it, but is firmly on the list for not reflecting even momentarily about whether the Tax Foundation data makes sense.

Hurrahs:
1) The Boston Herald reports the Tax Foundation data without soliciting input from the many researchers who think it's a misleading measure. But the Herald article wins points for noting that Massachusetts has an especially late Tax Freedom Day not because its taxes are so high (they're not) but because Massachusetts is a relatively wealthy state. Cleverly, the Herald also points out that when the mounting federal deficits are included, Tax Freedom Day is much later. (Take that, Chattanooga Free Press.)
2) The Buffalo News actually cites the CBPP critique of the TF data in their nicely skeptical piece. They don't get to the critical point raised by CBPP, which is that the use of national and statewide averages grossly overstates the impact of taxes on the typical taxpayer, but never mind.
3) Alan Essig and Sarah Beth Coffey of the Georgia Budget and Policy Institute point out that the Tax Foundation's flawed data can be used in a way that makes the relatively low cost of adequately funding state services sound pretty good. (quick free registration required).

Honorable mention to all those newspaper editors who smelled a rat and chose not to write about the Tax Foundation's bogus study at all.

Fresh for Tax-Filing Day...

...an important new angle on the Social Security Debate.

Over at The Christian Science Monitor Daniel Schorr makes an important point about the nature of Social Security recipients and private accounts. He claims that over 3 million children under 18 receive benefits because of disabled or deceased parents and more than another 2 million live in households in which the parents rely on Social Security to stay above water.
Schorr's point is that a child whose parent has died would find little help in a private account. It's an important consideration that also illuminates the bigger (and often mis-represented) role of Social Security. It is essentially an insurance plan, not a pension plan. For many of its recipients, it ensures against an impoverished retirement. For many others, however, it helps guard against the economic hardship that can come with disability and its impact on one's ability to earn a living and support a family.

Social Security is our promise to retirees, but also those who, due to unforeseen tragedy, could use a hand. For kids who have lost a parent, the program offers a measure of economic security that can help them make it through until they are old enough to earn a living themselves.

This is a crucial part of Social Security that should not be overlooked in the debate. If America is to be a land of opportunity, this is surely one type of insurance that we should not forego.

Keep on Blogging in the Free State

In many states, the fight for tax fairness and adequacy is waged by small, low-budget nonprofit groups who are often the only source for unbiased information on tax options. Maryland is blessed with at least two such groups, Progressive Maryland and the Maryland Budget and Tax Policy Institute. And MBTPI’s director, Steve Hill, has just started a blog on Maryland public policy issues. As Maryland continues to wrestle with important issues such as corporate tax reform and the possibility of funding public services using gambling revenues, Steve’s blog should be a good resource. If you’re at all interested in tax and budget policy in the Free State, check it out.

End the Work Penalty!

Last night, ex-Senator John Edwards was the keynote speaker at a New School conference on the very broad theme of "fairness." Edwards spoke for about 45 minutes before opening the floor for questions, and focused his remarks almost entirely on tax reform. It’s often hard to keep an audience awake on this topic for very long–but Edwards kept them on their toes. Not much was said that we didn’t all hear during the 2004 presidential campaign, but he strung things together in a way I never heard during the campaign season. (Thanks, soundbite-happy media!)

The theme of his talk was that the Bush administration’s fiscal policy has had the effect of punishing work and giving a privileged tax status to wealth. Of course, this isn’t news to folks at Citizens for Tax Justice. As a May 2004 CTJ analysis noted, the wave of tax cuts pushed through by Congress and the Administration in recent years (and the reduced tax rates on capital gains and dividends in particular) have reduced the average tax rate on unearned income well below the average rate on wages. The CTJ analysis showed that total federal taxes on earnings now average 23.4 percent, while federal taxes on investment income average just 9.6 percent. Expressed this way, the administration’s tax agenda has transparently shifted the tax burden off wealth and onto work. And this was the point that Edwards hammered home quite effectively all night– that Congress and the Administration have effectively enacted a "work penalty."

As other speakers kept reminding the audience throughout this conference, fairness is a contested term. But there are some baseline definitions of fairness that almost anyone would agree to– and ensuring that earned and unearned income are taxed the same way is, I think, one such area of unanimity. As Edwards put it: "why should a wealthy stockbroker pay a lower tax rate than his secretary?"

For those of us who have opposed the regressive tax cuts of the past four years, one of the biggest difficulties is that the thing we are defending is pretty amorphous. It’s important to have a progressive personal income tax, not least because so many of the other taxes levied at the federal, state and local level are regressive. But how do you argue convincingly that the current overall tax system is "not progressive enough" when there’s no real benchmark? I know that the current system can be characterized as just "moderately progressive" overall, and I have the sense that it ought to be more so, but it’s hard to know what precisely the goal ought to be.
Well, the earned-unearned dichotomy is a pretty good way of getting a handle on what the benchmark for federal income tax fairness ought to be. The tax system shouldn’t discriminate in favor of some kinds of income and against others–and certainly shouldn’t discriminate against the wages and salaries that are the bread and butter of most low- and middle-income workers’ existence. So let’s end the work penalty!

House Whistles Past National Debt

Yesterday the House Voted 272-162 to increase federal deficits by more than $290 Billion over the next decade, and substantially more after that.

NH Update: Deep Breath on Premiums

New Hampshire will have its problems, but so far, it looks like the legislature will avoid implementing harmful new premiums on the Medicaid coverage that so many of its neediest citizens rely on.

Here's the coverage.

Class Warfare, By Any Other Name

I'm one who believes that a rising tide lifts all boats. Congress, however, prefers a more oppositional approach to tax "reform" and our economy.

With the House digging into Budget talks this week, a lot of people are spilling ink on the estate tax and the attempted repeal of it.

The Washington Post gets moving with an editorial that briefly touches on Earl Pomeroy's (D-ND) alternative to the full repeal. More importantly the Ed Board writers explain in clear terms just how few people pay the estate tax compared with how many benefit from the programs and reduced deficits that it helps to pay for. E.J. Dionne chips in with a bit more flare than his colleagues and goes the extra, necessary, step of connecting the dots between the Estate Tax question and the Social Security debate. An important point that the Post's tandem hammers home is that the usual tropes dragged out by the "repeal the death tax" crowd--such as the family who sees their farm taxed away--are essentially fiction. What Congress is considering has little to do with farms, small businesses, or any other poll-friendly (often for good reason) demographic representation, and everything to do with asking even less of the absolute richest Americans when it comes to financially supporting the common good.

For more information on the estate tax, look at Citizens for Tax Justice's quick FAQ sheet and the Center on Budget and Policy Priorities run-down on the current legislative debate.

In thinking about the estate tax, it's worth mentioning that nothing happens in a vacuum. Everything Congress does reflects our priorities and this Congress has clearly cast it's lot with the wealthiest few at the expense of most people. This has applied to its thus far slap-dash engagement with Social Security and its refusal to take its own tax code seriously.

Harry Reid wisely hit the theme of our responsibility to future generations in his response to the State of the Union last winter. He quantified our national debt, saying, "Too many of the President's economic policies have left Americans and American companies struggling. And after we worked so hard to eliminate the deficit, his policies have added trillions to the debt - in effect, a 'birth tax' of $36,000 on every child that is born."

It is uncomfortable to think about each person's individual share of the debt, but with each budget, our government makes a choice: accept responsibility now or push it off 'til next year. This Congress has chosen the doubly cynical route of deferring deficits year after year even while it reduces the responsibility of those who have profited the most by the opportunity America has afforded them.

The White House and Congressional Leadership frequently offer the American people false choices. Social Security provides a good example. Choose between decreased benefits or higher taxes on middle class families, they say. But while all that is going on, they've voted to hand out bigger checks to the richest third of seniors and are about to vote on cutting taxes for the astronomically wealthy. In most cases, these are reported as separate phenomena. We need to start thinking in more holistic terms.

Gutting the IRS's ability to enforce the law, threatening to throw it out entirely--along with any income tax--and in exchange rely on a nationals sales tax (good grief), record debt and deficits, trying to repeal the estate tax, and increasing Social Security benefits to the richest retirees while putting Medicaid and Food Stamps on the budgetary chopping block.

That's just in the last couple of months, and that's Congress's vision for our future.

Spineless in Washington

In many states, lawmakers seeking to close fiscal gaps have very limited options. Washington State is not among them. While the state currently faces a $1.6 billion deficit for the upcoming two-year budget cycle, Democratic leaders in the House recently pushed through legislation which uses regressive "sin" taxes to eliminate about a fifth of that shortfall, with the rest being made up through spending cuts.

Washington lawmakers have other options!

Washington is one of 7 states that don't have a broad based income tax. As a result, and as noted in the Institute on Taxation and Economic Policy's January 2003 report, Who Pays, Washington has the most regressive tax system in the country. No other state balances its tax system more thoroughly on the backs of its low-income residents-- and no other state gives more of a free ride to its wealthiest citizens.

Instead of pushing for real structural and systematic tax reform, which would make the tax system more fair and more adequate - the state's lawmakers (including the governor) have come out with a budget "solution" that is really no solution at all.

The tax and budget situation in Washington is proof that few legislators there are willing to take a long term approach to balance the budget and instead are looking at ways to band-aid an enormous fiscal problem.

In Nevada, Something Is Better Than Nothing

Nevada Governor Kenny Guinn has signed Assembly Bill 489 into law. AB489 provides much needed property tax relief to Nevada residents (for background info, see here). However, it’s also sloppy tax policy. Here's what the bill does:

• Places a 3 percent cap on annual property tax increases for most homeowners, and
• Places a 10-year average growth cap (or 8 percent, whichever is less) on property tax increases for businesses and the majority of rental properties.

So what's wrong with this? In brief, it's a very poorly targeted approach to tax cuts-- too generous to homeowners, and too stingy in its treatment of renters. Simply placing a cap on property tax increases provides relief to all homeowners whose taxes are increasing, regardless of their ability to pay. Furthermore, it gives nothing to renters — who typically are low–income and feel the heat from rising property values as well.

People hate property taxes, and there's a good reason: they often change in ways that don't reflect your ability to pay them. If you pay $2,000 in property taxes this year and lose your job next year, your property taxes won't go down (of course, your income taxes will-- they're the ultimate "ability to pay"-based tax). This basic disconnect between property taxes and ability to pay is what makes these taxes so painful to low- and middle-income families. A smart approach to property tax relief resolves that disconnect by explicitly tying tax relief to your income levels. Tax caps give indiscrimate tax cuts to everyone whose taxes increase-- and therefore leave the property tax disconnect unchanged.

For more information on targeted property tax relief measures and other tax policy topics, check out ITEP's policy briefs here and here.

Who Pays for Gas Tax Relief in California?

Gasoline prices are ticking upwards again-- and state lawmakers are once again proposing to offset these increases by reducing state gas taxes. The latest incarnation of this idea was unveiled this week by the Speaker of California's Assembly, Fabian Nunez (D). Nunez wants to immediately cut the state's gas tax by 11 cents a gallon, and make up the revenue loss by increasing the general sales tax by a quarter cent. Over time, the Nunez plan would gradually increase the gas tax back to its former level, making this plan a revenue-raiser in the long run.

In the short term, this change won't affect California tax fairness much. The state's tax system is regressive, hitting low-income taxpayers much more heavily than the wealthiest Californians-- a problem that is due primarily to the state's use of regressive sales and excise taxes (such as the gas tax). So the Nunez plan amounts to cutting one unfair tax and increasing another.

But there's another, less-often appreciated dimension of tax fairness that would be made worse by the Nunez plan. Cutting the gas tax and hiking the sales tax amounts to cutting taxes on one particular consumer good, and increasing taxes on everything else people buy. In other words, this is not a tax cut, it's a tax shift-- cutting taxes on drivers and increasing them on everybody else.

Gas taxes, like "sin" taxes on cigarettes and alcohol, serve a social purpose: they increase the cost of driving in general, and driving gas-guzzlers in particular, and make commuters at least marginally more likely to pursue ride-sharing or public transit. Of course, these are long-term goals, and in the short run the likely outcome of rising gas prices is that commuters will get hammered. This is especially worrisome because gas taxes are much less affordable for low- and middle-income taxpayers than for the wealthy. But the Nunez plan would give with one hand and take away with the other-- hardly a recipe for low-income tax relief.