The proposed strategies include some of the most effective ways to support economic growth. The Center on Budget and Policy Priorities reinforces in a recent statement:

We need to boost the economy in the short run by enacting legislation that would, for example, extend unemployment insurance benefits and the temporary cut in payroll taxes beyond their scheduled expiration at the end of this year, provide more assistance to states to temper their need to impose more layoffs and cut more spending to balance their budgets, and create programs that would put people back to work on projects such as renovating and modernizing America’s schools. Such temporary policies would help boost growth and employment now without adding significantly to long-term deficits and debt.

Some of the main components of the bill, and the impact on Minnesota estimated by the Administration, are:

Tax cuts for employers

• Payroll taxes would be cut in half for employers’ first $5 million in wages. In Minnesota, an estimated 120,000 employers would benefit from this cut.
• Employers who increased their payroll (by adding new workers or increasing the wages of current workers) would pay no payroll taxes on up to $50 million of the increased payroll.
• Employers would receive tax credits of $5,600 to $9,600 for hiring unemployed veterans, and a $4,000 tax credit for hiring long-term unemployed workers.

Infrastructure investments

• The bill invests $50 billion in highways, transit, rail and aviation. The highway and transit portion alone would provide an estimated $608 million in Minnesota and support a minimum of approximately 7,900 jobs.
• Layoffs of up to 280,000 teachers nationwide would be prevented. The bill would also support hiring thousands more teachers and keep police and firefighters on the job. Minnesota would receive an estimated $504 million. These funds would support up to 6,900 teacher and first responder jobs.
• At least 35,000 public schools nationwide would benefit from school infrastructure investments. Minnesota’s share totals $275 million and would support up to 3,600 jobs.
• Hundreds of thousands of vacant and foreclosed homes and businesses would be rehabilitated. Minnesota could receive approximately $101 million, and could apply for more through a competitive bidding process.
• Facilities at community colleges would be modernized. Minnesota could receive $88 million.

Pathways back to work

• The Unemployment Insurance (UI) system would be reformed to help the long-term unemployed transition back to work. An estimated 71,000 Minnesotans are among the nation’s long-term unemployed.
• Unemployment Insurance benefits would be extended, preventing at least 13,400 unemployed Minnesotans from losing their benefits during the first six weeks.
• Low-income youth and adults would access work opportunities or obtain job training in growth industries through the Pathways Back to Work Fund. This could place 6,500 Minnesota youth and 1,700 Minnesota adults in new jobs.
• Hiring discrimination against the unemployed would be prohibited.

Tax cuts for workers

• The payroll tax cut passed in December 2010 would be expanded to cut workers’ payroll taxes in half in 2012. A typical Minnesota household with an income of around $56,000 would receive a tax cut of approximately $1,740.

When releasing the Jobs Act, President Obama emphasized that the bill would not add to the federal deficit. He proposes to pay for the bill through tax changes including new limits on itemized deductions for high-income Americans (individuals with incomes above $200,000 a year and families with incomes above $250,000 a year), by closing tax preferences for the oil and gas industries, and by changing the depreciation rules for corporate aircraft.

While it is highly unlikely that Congress will approve the entire bill, discussions have begun on Capitol Hill to determine whether agreement can be reached to pass parts of the bill. The continuing weak economy and high unemployment increase the pressure on the Administration and Congress to act.

-Steve Francisco

In a July 19 letter to President Obama and Congressional leaders, the economists state that,

While the nation faces significant fiscal problems that need to be addressed through measures that start to take effect after the economy is strong enough to absorb them, writing a requirement into the Constitution that the budget be balanced every year would represent very unsound policy. Adding additional restrictions, as some balanced budget amendment proposals would do, such as an arbitrary cap on total federal expenditures, would make the balanced budget amendment even worse.

They further note that in the future, such an amendment would aggravate recessions and could harm economic growth. In the short term, they argue that aggressive measures to balance the budget in today’s economy would “damage an already-weak recovery.”

The economists’ letter adds to the growing ranks of opponents of the BBA who recognize that a constitutional amendment is fiscally irresponsible and would create new obstacles to economic recovery. What is needed is a balanced approach to deficit reduction that includes fair and appropriate reductions in federal spending as well as increases in needed revenue.

Both the U.S. House and Senate may consider balanced budget amendments in the near future.

-Steve Francisco

The Minnesota Budget Project supports a responsible and balanced approach to federal deficit reduction that does not undermine the fragile economic recovery, that is equally divided between spending reductions and increases in revenue, and that does not increase poverty or inequality.

The proposed BBA would cap total federal spending at 18 percent of Gross Domestic Product (GDP), far below the 2010 level of 24 percent of GDP. Within a decade, the BBA could lead to a 70 percent reduction in funding for affordable housing, education, child care, Head Start, public health, veterans’ health care, environmental protection, health research, food and water safety, and more. For example, this hard spending cap would require cuts even deeper than those in the Ryan budget that passed the House in April, which slashes more than $1.5 trillion from health care through Medicaid and the Children’s Health Insurance Program (CHIP) over ten years.

The amendment would also require that any measure to raise revenues, increase the debt ceiling, or waive the balanced budget requirement be adopted by a supermajority vote in both the House and Senate. These severe restrictions would cause significant harm to the current fragile economic recovery and would make future recessions both deeper and longer by essentially tying the hands of the federal government’s ability to respond.

The Center on Budget and Policy Priorities is seeking organizations to join a sign-on letter to Congress opposing the Balanced Budget Amendment. The deadline to join the letter is Thursday, July 14. Time is short, so please join the Minnesota Budget Project and over 200 other organizations in asking Congress not to pass the BBA.

-Steve Francisco

Such proposals are sometimes justified by arguing that the Obama administration’s response to the most severe economic recession since the Great Depression is responsible for the large federal budget deficits that we are now seeing.

The Center on Budget and Policy Priorities, however, has released a new paper that sets the record straight. They note that much of the growth in the national deficit has its origins well before the Obama administration:

The deficit for fiscal year 2009 – which began more than three months before President Obama’s inauguration – was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II…

By themselves, in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies, the nation will owe by 2019. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.

Clearly, one of the most important steps that Congress could – and should – take to reduce long-term projected deficits would be to allow the 2001 and 2003 tax cuts to expire after 2012. We will not come close to reducing our long-term budget deficits unless Congress takes a balanced approach.

This is the case made by over 100 Minnesota nonprofits in a letter to our Congressional delegation. The letter calls for a responsible and balanced approach to deficit reduction, one that will not undermine the fragile economic recovery, is equally divided between spending reductions and increases in revenue, and that does not lead to an increase in poverty or inequality.

If your organization has not yet signed on to this letter, there’s still time to do so, as we will continue to make this case through the budget debate ahead and will provide an updated letter to our elected officials later this year.

-Steve Francisco

Some of the cuts, measured compared to Fiscal Year 2010 funding, include:

• $2.3 billion for housing programs (see Minnesota Housing Partnership’s helpful summary of the proposed “Death by a Thousand Cuts“)
• $600 million for Community Health Care Centers
• $390 million for the Low Income Home Energy Assistance Program (LIHEAP)
• $1.6 billion for the Environmental Protection Agency (a 16 percent decrease from 2010 levels), including $997 million less than 2010 for the Clean and Drinking Water State Revolving Funds
• $141 million for the Department of the Interior’s Fish and Wildlife Service and a $127 million cut for the National Park Service
• $125 million for Dislocated Worker Assistance
• $415 million for State and Local Law Enforcement Assistance.

Both the U.S. House and U.S. Senate are expected to vote on the package this week before leaving Washington for the spring recess.

Last weekend’s budget drama provides fresh proof that Congress (especially the U.S. House of Representatives) has embarked on an irresponsible, unbalanced and unfair approach to the budget and deficit reduction, one that disproportionately imposes deep cuts to services for low- and moderate-income Americans while extending tax cuts for the wealthiest Americans.

You have an opportunity to add your organization’s name to our sign-on letter asking our Minnesota Congressional delegation to support a responsible and balanced approach to budget and deficit reduction that protects the nation’s fragile economic recovery, takes a balanced approach to long-term budget deficits, and reduces federal deficits without increasing poverty. The deadline to join our letter is Friday, April 15 at noon.

-Steve Francisco

[Note: Since we first posted this blog, the deadline to join the sign-on letter has been extended to Friday, April 29.]

Right now, President Obama and Congressional leaders are struggling to come to an agreement on a budget for the remainder of the current fiscal year. If they are unable to come to an agreement, the federal government would begin a partial shutdown on April 9.

It’s more crucial than ever that Minnesotans weigh in and help break the stalemate. Your voice is needed to move us towards federal budget choices that protect the nation’s fragile economic recovery and lay the groundwork for a balanced approach to long-term budget deficits.

As Congress develops a budget resolution for next year, decisions should not be made that will undermine the fragile economic recovery now under way. Dramatic cuts in federal spending will be a drag on the economic recovery and could cost the nation much-needed jobs.

In the long-term, the federal government is facing a serious imbalance between spending and revenues. Long-term deficit reduction should be achieved through a responsible and balanced approach that is equally divided between spending reductions and increases in revenue. A one-sided approach to federal deficit reduction that focuses exclusively on drastic cuts and hard caps on domestic discretionary spending – the area of the federal budget including affordable housing, medical research, education, nutrition, environmental protection, energy assistance and other vital services – is both unwarranted and unbalanced. Such an approach will create significant hardship for the most vulnerable people in our communities and increase poverty.

The Congressional budget resolution for Fiscal Year 2012 will set spending ceilings for discretionary federal programs. These ceilings will have a direct impact on appropriations bills later in the year that will determine exactly how much federal money will be directed to our state and local governments. The federal budget and appropriations bills are particularly important this year, as our state and local governments struggle to balance their own budgets and maintain critical services for Minnesota communities.

Now is a critical time for your voice to be heard. Please add your organization to our sign on letter to the Minnesota Congressional delegation calling for a responsible and balanced approach to federal deficit reduction. The deadline to join our letter is noon on April 15.

-Steve Francisco

[Note: Since we first posted this blog, the deadline to join the sign-on letter has been extended to Friday, April 29.]

If fully adopted, the cuts would shave almost half a percentage point from real GDP growth in 2011 and another 0.2 percentage point in 2012. There would be almost 400,000 fewer U.S. jobs by the end of 2011 than without the cuts and some 700,000 fewer jobs by the end of 2012.

Zandi is not the only one issuing such findings. The Washington Post reports that, “the investment bank Goldman Sachs…predicted that the Republican spending cuts would cause even greater damage to the economy, slowing growth by as much as 2 percentage points in the second and third quarters of this year.”

A weaker economy as a result of drastic federal spending reductions would have negative repercussions for states, including Minnesota. States would see less income and sales tax revenue as a result of slower job growth – at a time when states are still struggling to balance budget shortfalls. In his analysis, Zandi also describes potential threats to economic growth from the impact on oil prices of unrest in the Middle East – a warning also issued by Minnesota State Economist Tom Stinson.

Congress has passed and the President will sign a two-week Continuing Resolution to fund the federal government through March 18. But Democrats and Republicans still need to bridge their significant differences over how deeply to cut spending levels for the remainder of fiscal year 2011. Zandi also notes that there would be further damage to the economy should there be a prolonged government shutdown. It is imperative that Congress work with the Obama administration to craft budget policies that will not harm the fragile economic recovery that is now under way.

-Steve Francisco

The bill passed the House by a vote of 235 to 189. Minnesota Representatives Bachmann, Cravaack, Kline and Paulsen voted for the bill while Representatives Ellison, Peterson and Walz voted against it. Representative McCollum did not vote.

The proposed spending cuts come only two months after Congress voted to extend the 2001 and 2003 tax cuts for high-income households and cut the federal estate tax for the wealthiest households in America for an additional two years. As we have noted previously, these tax cuts combined with the recent deep recession and the wars in Iraq and Afghanistan have been the biggest factors in adding to the growth of deficits – not non-security discretionary spending.

So how would the House bill affect Minnesota? The Center on Budget and Policy Priorities estimates the following impacts:

Certain K-12 education programs are cut by $24 million. These include:

• Title I Elementary and Secondary Education Act assistance to schools in low-income communities
• Termination of the Even Start program in support of literacy projects to improve the academic performance of young children
• Special education grants to states for services to children with disabilities
• Cuts to 21st Century Learning Centers and termination of Educational Technology State Grants and Mathematics and Science Partnerships.

Pell Grants for higher education students are cut by $84 million. This would mean less financial aid for 147,000 low- and moderate-income Minnesota students.

Vocational and Adult Education are cut by $2 million, including:

• Termination of Tech-Prep Education State Grants, which “help students gain academic knowledge and technical skills over the course of at least two years of secondary and two years of post-secondary education.”
• Termination of the Workplace and Community Transition Training program to provide education and vocational training to incarcerated youths.

$21 million cut for Workforce Investment Act (WIA) Job Training for three state formula grants including Adult Employment and Training Activities, Dislocated Workers Employment and Training Activities, and Youth Activities. This is equivalent to funding to serve 9,300 Minnesotans.

Mental Health and Substance Abuse Block Grants are cut by $2 million. Mental Health Services Block Grants “serve adults and children at risk of, or experiencing mental illness,” and Substance Abuse Block Grants “help state and local governments to support and expand prevention and treatment for individuals and families at risk of or affected by substance abuse and to reduce the impact of substance abuse on communities.”

Three Low-Income Housing Programs are cut by $25 million, including:

• The Public Housing Capital Fund, which local housing agencies use for repairs.
• The HOME Investment Partnership Program – funding to state and local communities used for rental assistance as well as affordable housing development, acquisition and rehabilitation.
• Native American and Native Hawaiian Housing Block Grants, which help fund affordable housing development and rehabilitation, housing-related services, and community development on reservations and tribal lands.

Clean Water and Drinking Water State Revolving Funds are cut by $35 million. These help Minnesota communities provide safe and clean drinking water to their residents.

Community Development Block Grants (CDBG) are cut by $39 million. CDBG funds “a broad range of community development activities, including housing development and rehabilitation, homelessness programs, improvements to public facilities such as senior and youth centers, economic development, and some social services.”

Byrne Justice Assistance Grants are cut by $2 million. These grants enable Minnesota communities to improve law enforcement and public safety.

On March 1, the House passed a short-term two-week Continuing Resolution to keep the federal government funded through March 18. The Senate is also likely to pass that bill. However, the House and Senate still need to work out a compromise for funding the remaining seven months of the current fiscal year or we could be headed toward the first partial shutdown of the federal government since 1995. The House is expected to continue to push for the deep cuts to discretionary programs we described above.

-Steve Francisco

The fact that the President’s budget includes a mix of both spending cuts along with increased revenue is noteworthy, given the increasingly polarized political climate in Congress, where many members advocate drastic reductions in spending but refuse to consider new revenue. The President’s balanced approach makes more sense because it recognizes the vital role that some federal spending has in protecting the still-fragile economic recovery.

Some key proposals in the President’s budget include:

• Freezing overall funding for non-security discretionary programs for five years, saving $400 billion over ten years (including a deep 50 percent cut in community services block grants and the Low-Income Home Energy Assistance Program (LIHEAP).
• Cutting $78 billion in defense spending over the next five years.
• Preventing $950 billion in additional deficits by allowing the 2001 and 2003 tax cuts for households with incomes over $250,000 to expire as scheduled after 2012, and restoring the federal estate tax at the 2009 parameters. Under these parameters, the assets of 99.75 percent of Americans who died in 2009 were exempt from the estate tax.
• Capping itemized deductions at 28 percent and using the savings to pay for the extension of relief from the Alternative Minimum Tax (AMT) for three years. (Previously, extended AMT relief has not been paid for, thereby adding to deficits).

The President’s proposed cuts would create hardship for many Americans, such as the deep cuts to energy assistance. Nevertheless, the President’s proposals are preferrable to Congressional proposals for much deeper across-the-board reductions to all non-security discretionary spending.

Watch for further analyses in the coming days about how the President’s proposed budget would affect Minnesota.

- Steve Francisco

In mid-January, the House Republican Study Committee (RSC) went much farther than Speaker Boehner by proposing to cut and then freeze non-defense discretionary spending at 2006 levels from 2012 to 2021. This would result in drastic cuts of 42 percent in this part of the budget by 2021, compared to  maintaining last year’s funding levels and adjusting for inflation.

The RSC proposal includes a $2.3 trillion reduction in discretionary spending overall as well as specific spending reductions, which are outlined on the Republican Study Committee (RSC) website. Some of the cuts identified by the RSC would hit states hard, even as they struggle to meet the needs of their residents during these tough times. For example, the proposal would repeal the temporary increase in the federal share of funding for health care under Medicaid.

Non-defense discretionary spending is not a majority contributor to the large deficits that we are seeing today. The impact of the deep recession, the 2001 and 2003 tax cuts, and the wars in Iraq and Afghanistan have been the biggest factors in adding to the growth of our deficits.

President Obama is expected to call for a five-year freeze on discretionary spending, but with some flexibility within this category of spending, when he releases his proposed budget on February 14. Watch for Congress to debate a continuing resolution to fund the federal government the week of February 28.

We need Congress to take a balanced approach to deficit reduction that includes revenues as a part of the solution to federal deficits.

-Steve Francisco