A Significant Economic Hit to the National Economy and a Gradually Expanding Erosion of Key Programs
Economists expect the federal government shutdown to have significant adverse consequences for the national economy. This LA Times article reports that some project that even just a two-week partial shutdown will cause a reduction of 0.3 to 0.4 of a percentage point from national economic growth in the fourth quarter. That’s particularly a problem when the economic recovery is already so sluggish that job growth has been barely keeping ahead of population growth.
I worry about those economic consequences, but I am also very concerned about the effects of the shutdown on children and families in our state – especially for low-income and vulnerable families. Fortunately, most federally funded programs for those families will continue at least through October, but the consequences could be very serious for vulnerable families if the shutdown lasts well into the fall. Read more
A new interactive tool created by the National Priorities Project (NPP) provides a very interesting way to visualize the major federal income tax breaks. The data tool allows you to see the size of the 10 major federal income tax breaks, and the results might surprise you.
The combined cost of the ten largest tax breaks is more than $750 billion this year, and the top two account for nearly half of the total. This web page compares those amounts, and the interactive tool allows you to also see who benefits from each and how the costs have changed over time. As you move your mouse over the bars in the graph on the left, the charts on the right-hand side will change to show information about a specific tax break.
The Governor and Legislature made several high-profile rejections of federal dollars in the 2013-15 budget, the most notable of which was turning down federal resources targeted at reducing the number of people without health insurance. Despite the selective antipathy towards federal money, it remains a major component of the Wisconsin budget.
Wisconsin’s Federal Funds Conundrum: Inconsistent Approaches Undermine Arguments about Sustainability
Short-term Federal Dollars Build up the Balance Used for Permanent Tax Cuts
I find it very puzzling how state lawmakers decide if they will accept federal dollars and how they explain their choices. State budget writers routinely accept many sources of federal funds, such as highway dollars, yet they question the sustainability of other sources – such as the enhanced Medicaid funding that would actually save Wisconsin taxpayers $119 million during the 2013-15 biennium. At the same time, other much less reliable sources of federal funds are being used to generate lapses to the General Fund, thereby helping increase the size of the permanent tax cuts in the budget bill.
These inconsistencies in how lawmakers decide what to do with federal funding are timely this week because the Joint Finance Committee votes tomorrow (July 18th) on a plan for using lapsed funds (including a couple of federal funding sources), and because of the recent news about the state’s decision not to fully utilize additional federal dollars that could bolster employment services for people with disabilities. Read more
Interest rates for many subsidized student loans doubled on July 1, potentially raising education costs for thousands of students in Wisconsin.
The interest rate for subsidized Stafford loans increased from 3.4% to 6.8% last week. The federal government makes about $28 billion in subsidized Stafford loans a year, accounting for one out of every four dollars of loans provided by the federal government. The change in interest rates will affect new student loans, not the loans already in existence.
The 3.4% rate was originally set to expire in 2013, then pushed back to 2012 as part of a compromise with Republicans, and then changed again to 2013. This excellent explanation at the Washington Post has more details about the history of subsidized Stafford loan rates as well as the different plans advanced by various policymakers to address the increase in loan rates.
Higher interest rates on subsidized student loans would make higher education more expensive for students from low- and moderate-income families, and could increase the overall debt level for students. Read more
About 22,000 military families in Wisconsin receive the federal Earned Income Tax Credit (EITC) or the low-income component of the Child Tax Credit (CTC), according to a new report from the Washington, DC-based Center on Budget and Policy Priorities.
Nationally, roughly 1.5 million military families, which include about 3 million children under age 18, received one or both of the credits. The credits make a major difference to their economic security:
- The EITC and CTC together keep more than 140,000 military families — with nearly 300,000 children and 600,000 total family members — from falling below the poverty line, based on the federal government’s Supplemental Poverty Measure, which counts income from tax credits.
- These credits reduce the severity of poverty for about another 800,000 members of military families.
- The credits also help working families with incomes modestly above the poverty line who still struggle with basic expenses like housing, school clothes, car repairs, and groceries.
Senate Expected to Level Playing Field for Main Street Businesses
Legislation that would allow states to compel internet retailers to collect sales taxes is expected to pass the U.S. Senate in the next couple days. Passage of the Marketplace Fairness Act would be a first step towards leveling the playing field between internet retailers and bricks-and-mortar businesses.
Under current law, internet retailers are not required to charge customers sales tax unless the retailer has a physical presence in the state where the customer lives. Customers are still required to pay sales tax on on-line purchases, by declaring purchases on their income tax forms. Few customers do this, though. By not charging customers sales tax, online retailers can undercut bricks-and-mortar retailers on price.
Some states have undertaken their own efforts to compel internet retailers to collect the sales tax, with varying success. It seems clear that a federal approach to this challenge would ensure a more consistent approach among the states, but until now Congress has been slow to take action on this issue. Read more
Two federal tax credits are responsible for lifting tens of thousands of Wisconsin children out of poverty. Together, the Earned Income Tax Credit and the Child Tax Credit lift 136,000 Wisconsinites out of poverty, including 71,000 children, according to a new report from the Center on Budget and Policy Priorities.
The new CBPP report underscores how important the two credits are to low- and moderate-income families with children. The federal EITC benefits about 390,000 households a year in Wisconsin, and the CTC benefits 296,000 households.
The benefits of these credits go beyond just helping families make ends meet. We’ve long known that in addition to lifting families out of poverty, refundable credits like the EITC encourage work, improve the health of children, and help children do better in school. New, groundbreaking research shows that many of these benefits last into a child’s adulthood. In later life, children whose families receive the credits are likelier to attend college, work more hours, and earn more money. Read more
Preliminary Thoughts on the “Chained CPI,” from a Policy Perspective and Strategic Perspective
Until recently, most Americans probably hadn’t ever heard of the “chained CPI,” and the rest of us generally tuned out any discussion of the idea. That is likely to change significantly in the coming weeks and months, now that President Obama has endorsed it as a deficit reduction strategy. There are many different parts of the President’s budget package that I’m tempted to write about, but this one is likely to be the most hotly contested, and it’s worth starting to explore the pros and cons.
In a nutshell, the “chained CPI” is a way of adjusting the traditional measure of cost of living increases by taking into consideration that as certain goods and services become more expensive, people shift their consumption to other goods and services that are more affordable. For a good summary of the issue, see the NPR story Tuesday. Read more
Sequester’s Head Start Cut Exposes Kids to the Lottery at an Early Age
As I read the following story, I was sincerely hoping it would prove to be an April Fool’s item – but alas, that is not the case. It’s actually a story from mid-March, which I just learned about today, via Jared Bernstein’s blog (On the Economy, which is well worth following if you have an interest in federal fiscal issues and/or economic policy).
“At least two Indiana Head Start programs have resorted to a random drawing to determine which three-dozen preschool students will be removed from the education program for low-income families, a move officials said was necessary to limit the impact of mandatory across-the-board federal spending cuts.”
This sort of story is likely to become much more common over the next month or two, and perhaps far more so in coming years. Read more