Let high-income tax cuts expire, redirect money to stimulate economy

September 2, 2010

The Center on Budget and Policy Priorities makes a strong case for letting $40 billion in Bush tax cuts for high-income households expire as scheduled at the end of this year. That $40 billion could instead be redirected to help stimulate the weak national economy.

According to the nonpartisan Congressional Budget Office (CBO), if this money were used for job-creation tax credits, continued federal aid to states and extended unemployment insurance benefits, it would create more jobs and generate more economic growth than simply extending the Bush tax cuts for the top income households in the nation (i.e., those with incomes over $250,000 a year). Why? Because higher income households are more likely to save this extended tax windfall than spend it. What the economy needs right now, however, is more consumer spending.

In fact, “CBO found extending the tax cuts for high-income households to be the worst of all options under consideration for preserving or creating jobs and boosting economic growth while the economic is weak,” the Center on Budget and Policy Priorities notes.

In the near term, the CBO found that some actions would create more economic growth and more jobs per dollar spent than extending the high-income tax cuts. For example:

  • A temporary jobs tax credit (a temporary payroll reduction on new hires).
  • Extending federal fiscal aid to states to help them avoid bigger and deeper spending cuts. (Congress in fact has recently taken this action, which may provide $430 million for health care and education in Minnesota.)
  • Extended unemployment insurance benefits for the unemployed. This provides the greatest “bang for the buck,” as benefits paid out to the unemployed would undoubtedly be injected right back into the local economy in spending by the unemployed to meet basic living needs.

When Congress returns from its summer recess in September, expect a fierce debate over the future of the expiring tax cuts (along with whether or not Congress will extend tax credits targeted to low- and moderate-income working families, such as the Child Tax Credit and the Earned Income Tax Credit). Extending the tax cuts for high-income households is the worst option for spurring economic growth, and would add $1 trillion to the national debt over the next ten years. Congress should allow the Bush tax cuts to expire. In the short-term, Congress should redirect that money toward initiatives that will truly stimulate the economy and help struggling working families. Once the nation’s economy is on more solid footing, the resources can be used to make a dent in the nation’s deficit.

-Steve Francisco

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Posted by Steve Francisco

Governor Pawlenty should OK Minnesota’s share of additional federal funding

August 20, 2010

We recently reported that Minnesota will receive an additional $263 million in federal Medicaid funding. Minnesota policymakers have been waiting since January for Congress to approve this funding, but there is one last step: Governor Tim Pawlenty must certify that he will accept it by September 24.

The additional federal health care dollars would come at a time when the state is facing large budget deficits, and could prevent deeper budget cuts than would be necessary without the federal money. Temporary aid to states, such as the extra Medicaid money, is one of the most effective things the federal government can do to keep and create jobs and increase demand in the economy. The enhanced Medicaid payments approved by Congress and signed into law by the President will provide Minnesota and other states with continued vital federal aid through the end of the current state fiscal year (June 30, 2011).

Minnesota has already received nearly $1.3 billion in additional federal Medicaid dollars since February 2009 when Congress passed the first round of economic recovery legislation; money that has protected health care for thousands of Minnesotans and saved health care jobs in our state.

Governor Pawlenty has supported this additional funding for Minnesota in the past, and included it in his supplemental budget proposal on February 15. However, Congress had not yet made a final decision by the time the state budget was wrapped up in May, so that final agreement did not count on federal funding that was uncertain.

Minnesota cannot afford to leave $263 million in federal funding sitting on the table. Minnesota is facing a $5.8 billion deficit next biennium. Not accepting the federal money would put the state in a weaker position for what already will be very difficult budget decisions for FY 2012-13.

We urge Governor Pawlenty to certify that he will accept the additional $236 million in federal aid that is desperately needed in this difficult economic environment. He should note that the additional federal aid to states does not add to the federal deficit, because it was offset by other spending cuts and tax changes.

- Steve Francisco and Scott Russell

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Posted by Steve Francisco

Minnesota to receive $430 million for health care and education

August 13, 2010

Congress has approved and President Obama has signed into law a bill that will send $430 million to Minnesota to help pay for health care and to save public school teachers’ jobs. The breakdown is $167 million for education and $263 million in additional funding for health care provided by Medicaid.

As we have frequently blogged, federal aid to the states is an effective way to help support the economic recovery, as it prevents deeper state budget cuts and related job losses, both of which are a drag on the economy. The nonpartisan Congressional Budget Office has found that temporary federal assistance to the states is, in fact, one of the most effective measures the federal government can take to create jobs and increase demand in the economy. The extension of the federal matching rate for Medicaid is paid for, or offset, by reductions in other spending so that it will not increase the federal deficit.

Minnesota has already received nearly $1.3 billion in additional federal health care dollars thanks to an increase in the federal share of funding for Medicaid in the economic recovery act, funding that has protected health care for thousands of Minnesotans and has saved jobs in the health care sector. The original increase in federal funding for Medicaid will expire December 31, 2010. The new legislation extends the enhanced federal Medicaid funding for an additional six months, through June 2010.

The new legislation also includes additional federal support to local school districts to prevent imminent teacher layoffs. The funds must be used to preserve elementary and secondary education jobs. The U.S. House Committee on Education and Labor estimates that Minnesota could receive $167 million that would be used to fund approximately 2,800 teacher positions. The additional federal aid for education comes with maintenance of effort requirements that Minnesota must keep K-12 and higher education spending at 2006 levels or maintain K-12 and higher education spending at their 2006 share of total revenues.

As it stands, approximately $240 million of the $263 million in new Medicaid money will flow into the state’s general fund. This creates a cushion if a new deficit opens up in FY 2011, and could reduce or eliminate the need for short-term borrowing or additional budget cuts. If not needed to fill a budget gap in FY 2011, these additional federal Medicaid dollars could be used to improve access to health care for struggling Minnesotans.

The remaining $23 million goes in part to enhanced payments to the MinnesotaCare program and in part to counties to reimburse them for small Medicaid contributions. The state will have to spend a small amount of money (probably less than $10 million) to meet federal maintenance of effort  requirements to get the Medicaid money.

The bill passed the U.S. Senate last week by a vote of 61 to 39, with both Minnesota Senators Amy Klobuchar and Al Franken voting “yes.” On August 9, the U.S. House of Representatives passed the bill by a vote of 247 to 161. Representatives Ellison, McCollum, Oberstar, Peterson and Walz voted “yes” and Representatives Bachmann, Kline and Paulsen voted “no.”

-Steve Francisco and Scott Russell

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Posted by Steve Francisco

Congress should reject hard caps on discretionary spending

July 26, 2010

Hard caps on nondefense domestic discretionary spending will not significantly reduce long-term deficits. That’s because the biggest factors contributing to long-term deficits are primarily the 2001 and 2003 Bush tax cuts and the costs associated with the wars in Iraq and Afghanistan – not domestic discretionary programs. According to the Center on Budget and Policy Priorities:

Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including associated debt-service costs. 

Domestic discretionary spending is the portion of federal spending included in annual appropriations bills to fund a broad range of national priorities, including education, environmental protection, law enforcement assistance, food safety, nutrition, medical research through the National Institutes of Health and more. Nondefense domestic discretionary spending makes up about 18 percent of all federal spending.   

Earlier this year, Senators Jeff Sessions and Claire McCaskill introduced an amendment to the Federal Aviation Administration bill that would have imposed hard caps on all nondefense domestic discretionary appropriations bills for the next three years. According to the Center on Budget and Policy Priorities, the Sessions-McCaskill amendment would have required cuts totaling nearly $30 billion in fiscal year 2011 or five percent below the President’s budget request. In fiscal year 2012, the Sessions-McCaskill amendment could have required cuts totaling almost $100 billion; a 15 percent cut below the President’s budget request.

In addition to these spending cuts, the Sessions-McCaskill amendment also required a two-thirds supermajority vote in the Senate to change the hard caps on discretionary spending, with no exceptions for any changes in the national economy or other factors that could make reconsideration of the caps necessary. If the Sessions-McCaskill amendment were adopted, a minority of only 34 out of 100 senators could prevent Congress from raising the spending caps to meet a future economic challenge or emergency.

Placing hard caps on domestic discretionary spending would also impede efforts to raise revenues to reduce long-term federal deficits. That’s because in past deficit reduction agreements, multi-year discretionary spending caps were linked to revenue and entitlement savings. The Session-McCaskill amendment would result in deep cuts to domestic discretionary spending without securing any savings from other parts of the budget, including revenue increases. Simply imposing new caps on discretionary spending places all of the burden for reducing the deficit on one part of the budget and ignores how much tax cuts have contributed to deficits. The Center on Budget and Policy Priorities notes that the Bush-era tax cuts from 2001 and 2003 account for $1.7 trillion more in deficits from 2001 to 2008, and $3.4 trillion more over the 2009-2019 period.

Fortunately, the Sessions-McCaskill amendment was not adopted. However, it is likely that there will be continuing attempts throughout the remainder of this year to attach this amendment to individual appropriations bills or to a continuing appropriations bill later this year. A balanced approach to deficit reduction is needed — one that looks at both fair and appropriate spending cuts as well as the elimination of selective tax cuts that are contributing to long-term deficits.

-Steve Francisco

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Posted by Steve Francisco

Congress close to passing unemployment benefit extension, economic boost expected

July 21, 2010

Wednesday evening, the U.S. Senate approved an extension of unemployment insurance (UI) benefits, after clearing a key procedural hurdle on Tuesday. While the bill leaves some key supports for unemployed workers off the table, the action will have an immediate positive impact in Minnesota and around the country. The bill still needs House approval, which also is expected this week.

The legislation provides additional weeks of benefits for the long-term unemployed, similar to the UI extension that expired June 2. It helps individual workers and their families at a critical time and will help the country’s economic recovery as a whole.

MPR reports the extension will restart benefits for 2.5 million unemployed workers nationally, providing up to 86 weeks of benefits for workers unable to find a job.  When the last UI extension expired June 2, eligibility for newly unemployed Minnesotans dropped to 39 weeks. The extension means that 80,000 Minnesotans will get additional benefits. The proposed extension would stay in effect until November 30.

Those unemployed workers who have already received their maximum 86 weeks of benefits will not qualify for additional weeks.

On the down side, the proposed UI extension does not provide some of the benefits in the earlier stimulus. For example, it does not include the $25-a-week additional payment to unemployed workers. For the week ending May 29, that $25 bonus payment provided a total of $3.6 million in additional dollars to unemployed Minnesotans. That money helped them pay for basic needs  – and circulated quickly in the local economy. (Those who started UI before June 2 will continue to get the $25 weekly payments for a period of time, but they will get phased out.)

The proposed UI extension also does not include supports for COBRA payments, helping unemployed workers maintain their health insurance.

According to analysis by the Economic Policy Institute (EPI), the UI bill will add $34 billion directly into the economy in the form of payments to the unemployed. However, after accounting for the increasing impact of that money being spent and respent, the benefit to the nation’s economy will be closer to $55 billion. In the end, the bill will partially pay for itself, generating $20.5 billion in new federal revenues due to the increased economic activity.

-Scott Russell and Steve Francisco

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Posted by Scott Russell

Recovery Act has brought $2.6 billion to Minnesotans

July 9, 2010

Minnesotans have received approximately $2.6 billion in direct federal assistance from February 2009 through May 2010 as a result of the American Recovery and Reinvestment Act (ARRA), according to the Center on Budget and Policy Priorities. The direct assistance was provided through increased benefits for existing federal programs, through new tax credits and through direct cash payments. The collective impact of this direct assistance has been to put additional income into Minnesotans’ pockets to help struggling working families avoid falling into poverty and to save jobs in our local economy through increased consumer spending. Most economists agree that increased consumer spending is the key to a sustained economic recovery.

Here’s a breakdown of how much direct assistance has been received by Minnesotans through tax credits or direct cash assistance through May 2010 thanks to the Recovery Act:

1. Making Work Pay Tax Credit – $1.4 billion for Minnesotans. The Recovery Act created a new refundable tax credit equal to 6.2 percent of a worker’s earned income in 2009 and 2010. The vast majority of wage earners will benefit from this tax credit, receiving a maximum credit of $400 for an individual or $800 for a married couple. Individuals earning over $75,000 or married couples earning over $150,000 receive a smaller credit. No tax credit is available to individuals earning over $95,000 or married couples earning over $190,000.

2.  Food Stamps - $109 million for Minnesotans. The Recovery Act provided a nearly 14 percent temporary increase in the maximum Food Stamp benefit. This translated into the average participating household getting $40 to $50 more each month beginning in April 2009. Also, the time limit on how long childless adults could receive Food Stamps was suspended.

3. Unemployment Insurance (UI) Benefits – $232 million for Minnesotans. The Recovery Act temporarily increased the regular Unemployment Insurance benefit by $25 per week.

4. Extended Unemployment Compensation (EUC)- $672 million for Minnesotans. The Recovery Act , as well as other legislative action, provided additional weeks of unemployment benefits to people who would otherwise have exhausted their benefits. 

5. $250 Economic Recovery Payments – $212 million for Minnesotans. The Recovery Act included a one-time payment of $250 to anyone receiving Social Security, Supplemental Security Income (SSI), Railroad Retirement or disabled veterans’ benefits. This one-time payment was distributed mostly in May 2009.

While we have a long way to go to return to a robust, vibrant and growing economy here in Minnesota, consider how much worse off many Minnesotans and our economy would be today if not for the $2.6 billion in tax credits and direct assistance made possible by the Recovery Act. The money is flowing to struggling families and individuals who spend it in our communities, helping to spur economic recovery.

To keep the economy on the right track, Congress should extend additional aid to individuals (such as by extending  Unemployment Insurance benefits) and to states (such as through the extension of the enhanced federal matching rate for Medicaid). One point seems clear: the federal government has a powerful and significant role to play in helping struggling Minnesotans survive the continuing economic recession.

-Steve Francisco

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Posted by Steve Francisco

Minnesota nonprofits urge Congress to support Child Tax Credit, Earned Income Tax Credit

July 1, 2010

Fifty nonprofits from across Minnesota joined a sign-on letter to the Minnesota Congressional delegation expressing strong support for recent improvements to the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) that were included in the American Recovery and Reinvestment Act (ARRA). These improvements help struggling Minnesota families to make ends meet. They provide powerful incentives that promote work, self-reliance and parental responsibility.

The Recovery Act, passed by Congress in 2009, allowed more low-income families to qualify for the Child Tax Credit of up to $1,000 per child. But this lower wage threshold is set to expire at the end of this year unless Congress acts to pass an extension of the provision. Approximately 156,000 Minnesota children and their families have benefited from this improvement to the Child Tax Credit, which brought an additional $126 million to Minnesota families.

The Recovery Act also increased the Earned Income Tax Credit for families with three or more children and some families headed by married couples. But this improvement to the EITC is also set to expire at the end of this year unless Congress acts to extend it. Approximately 102,000 Minnesota households have benefited from the EITC improvements, which brought an additional $51 million to Minnesota working families.

Extending the Child Tax Credit is especially important for children living in rural areas, including tens of thousands of children living in rural parts of Minnesota. The Center on Budget and Policy Priorities finds that:

Rural children will be roughly 20 percent more likely than those in metropolitan areas to face reductions in their child credit if Congress fails to extend the Recovery Act improvement. Nationwide, rural America includes 15 percent of all children — but 18 percent of the children whose Child Tax Credit would be reduced.

So what would the expiration of the improvements to the Child Tax Credit mean to Minnesota families?

A parent with two children who works at a full-time minimum wage job would see her Child Tax Credit cut from $1,725 this year to only $248 next year – a loss of $1,477. It’s estimated that 600,000 children nationwide will fall into poverty because of the loss of part or all of their Child Tax Credit and an additional four million children who are already living in poverty will become even poorer, according to the Center on Budget and Policy Priorities.

Congress is expected to take up a package of tax legislation some time in July or early August. Congress should extend the improvements in the Child Tax Credit and Earned Income Tax Credit, which have made a difference to thousands of Minnesota families with children. Evidence shows that this kind of federal spending helps boost consumer spending – a critical part of helping along the nation’s economic recovery.

- Steve Francisco

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Posted by Steve Francisco

Extending Medicaid aid to the states would boost economy, save jobs

June 25, 2010

The U.S. Senate faced a critical vote yesterday on measures that are important to the country’s continued economic recovery, including a six-month extension of additional federal funding to states for Medicaid (also known as FMAP), as well as an extension of Unemployment Insurance. The failure to pass these provisions threatens to slow the nation’s economic recovery.

The nation’s economic recovery remains fragile, and can be harmed by state actions to balance their budgets. The Center on Budget and Policy Priorities finds that the projected budget gaps that states must close for the fiscal year starting this July total $140 million. They estimate that state actions to close these budget shortfalls could cost the economy up to 900,000 public and private sector jobs next year – the wrong way to go if we want to end the recession and reduce unemployment. The extension of federal help to the states through FMAP would prevent deeper state budget cuts and related job losses.

Minnesota could receive approximately $220 million in additional funding from the provision; some estimates based on different but reasonable assumptions come up with higher figures. Through this May, Minnesota has already received nearly $1.3 billion in additional Medicaid funds thanks to the enhanced matching rate, funding that has protected health care for thousands of Minnesotans and has saved jobs.

The nonpartisan Congressional Budget Office (CBO) says that temporary assistance to the states, as well as Unemployment Insurance benefits, are among the most effective measures the federal government can take to create jobs and increase demand in the economy.

Some members of Congress have voted against these provisions, arguing that the nation must focus on reducing its long-term deficit. But legislation to help struggling families survive the worst economic recession since the Great Depression has not been a primary contributor to the growth in the long-term deficit. The more significant contributors include the economic downturn, the 2001 and 2003 tax cuts (that disproportionately benefited the highest-income households in the nation), and the costs associated with the wars in Iraq and Afghanistan. The extension of the enhanced Medicaid matching rate for the states is only a temporary measure – it would not add significantly to the long-term federal deficit.

In failing to pass legislation that extends help to the jobless and aid to the states, Congress is turning its back on the most effective tools it can use to help Minnesotans struggling in these tough times and help the nation’s economy recover. We are fortunate that both of Minnesota’s U.S. senators, Amy Klobuchar and Al Franken, support these provisions.

-Steve Francisco

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Posted by Steve Francisco

Congress considers whether to extend additional health care funding to states

June 3, 2010

Congress is considering whether to provide states with additional funding for health care, helping state governments at a time when most are facing budget shortfalls and considering reductions in health care and services. Unfortunately, the opportunity to protect access to health care for many Minnesotans may be slipping away.

Last week, Democratic leaders in the U.S. House of Representatives agreed to strip out a key provision extending the enhanced federal matching rate for Medicaid, known as FMAP, from a larger bill to extend unemployment insurance. (A provision extending subsidies that help the unemployed maintain their health care coverage through COBRA was also dropped from the bill). That bill passed the House last Friday and awaits Senate action as early as the week of June 7th. A key question is whether Senate Majority Leader Harry Reid will agree to add the extension of federal aid to the states to the Senate version of the bill.

Last year, Congress passed the American Recovery and Reinvestment Act (ARRA), which temporarily increased the federal share of Minnesota’s Medicaid costs from the regular 50 percent up to roughly 60 percent. But this increased matching rate is set to expire at the end of this year. Extending the matching rate would bring Minnesota an estimated  $408 million, funding that could protect health care and other services as our state continues to face budget shortfalls.

The focus now shifts to the U.S. Senate, which is expected to take up the Unemployment Insurance extension bill when it returns to session the week of June 7th.

It is highly unlikely that Congress would pass a separate bill to extend federal aid to states for Medicaid and so the extension of aid must be included in some other “must pass” bill, such as the bill to extend expiring Unemployment Insurance benefits.

Both of Minnesota’s U.S. senators have been supportive of extending the federal aid to states for Medicaid. Senator Franken has been particularly outspoken about the need to extend additional aid to the states and cosponsored a separate bill. Hopefully, the Senate will move quickly to add the extension of health care funding to the Unemployment Insurance bill when they return from their recess next week.

-Steve Francisco

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Posted by Steve Francisco

Federal Medicaid resources would prevent cuts to Minnesota’s most vulnerable

May 14, 2010

Minnesota has been waiting for months to see if Congress will act to extend the enhanced Medicaid matching rate (frequently referred to as the FMAP extension). At issue is an anticipated increase in federal dollars for Medicaid, health care for low-income people whose costs are shared between federal and state governments (it’s known as Medical Assistance in Minnesota). The federal government’s initial recovery act provided the states with additional federal health care funding – Minnesota received $1.8 billion – so that people would not lose their health care during these tough economic times. This additional health care funding ends December 31, 2010.  The question is whether Congress will provide another six months of additional federal health care dollars, about $408 million for Minnesota.

With Minnesota’s legislative session ending next Monday, the legislature passed a bill early this week to solve the state’s budget deficit without the FMAP extension. However, the bill included contingency language. If the federal dollars are approved by June 15th, the funds would be used to reverse cuts to child protection services, homeless shelters, developmental disability services, chemical dependency grants and a range of health care providers. In addition, the resources would increase access to health care by reversing tighter asset limits and restoring an outreach program that helps people enroll in public programs. The extension of FMAP would also force Minnesota to delay the implementation of some cuts in health care eligibility in order to be eligible for the federal dollars.

Whatever the fate of this particular bill (which was vetoed by the Governor on Tuesday), policymakers will be looking to implement reductions to vital services for struggling Minnesotans. The federal dollars are an important resource that would help Minnesota’s economy in more than one way. The additional funding would minimize the cuts in services for families who are still a very long way from recovering from the recession. On top of that, the federal money would also save jobs in Minnesota that would be eliminated when state funding is cut.

Right now, it looks like the U.S. House of Representatives may take a vote on extended FMAP as early as next week.

-Christina Wessel

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Posted by Christina Wessel

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