CBO Says the Bill Cut Taxes by $3.7 Trillion, Plus Cost of the Refundable Credits
I said last week that I would comment on the implications of the “fiscal cliff” bill for the next round of federal budget debates, and I want to follow through on that promise/threat. Today’s blog post lays the foundation for that discussion by examining the magnitude of the tax changes in the bill, illustrated in the following pie chart.
Although most fiscal conservatives look at the bill as a tax increase, the Congressional Budget Office (CBO) usually describes it as a multi-trillion tax cut, and not simply because it was passed and signed in 2013. The CBO generally measures the fiscal impact of legislation relative to current law at the time of the estimate, not based on current policy at that time. In other words, they calculate the fiscal effect compared to what would have happened without the legislation. Since the “current law” (up until last week) provided for large tax increases and spending cuts in 2013, the CBO says that the various provisions extending tax breaks or making them permanent create a huge increase in the federal deficit, relative to what it otherwise would have been. Read more
Extension of Bush Tax Cuts Costs Wisconsin $219 Million of Anticipated Estate Tax Revenue
The fiscal cliff bill enacted this week complicates the task of balancing the next state budget. The latest fiscal challenge doesn’t result from a cut in federal aid, although that is likely to be one of the effects once the “sequester” or alternative budget cuts go into place. Instead, the new budget challenge stems from the extension of the Bush tax changes, one of which prevents the state estate tax from going back into effect – thereby eliminating $219 million of revenue that the Walker Administration’s budget documents had assumed the state would receive in the 2013-15 biennium.
To make sense of this development, you need to understand that federal law formerly allowed state estate taxes to be used as a credit against federal estate tax liability. Wisconsin and the vast majority of states took advantage of that and designed their estate taxes so they wouldn’t increase the amount of taxes an estate owed; the states merely captured a portion of the revenue that would otherwise go into the federal treasury. Read more
Day 8: Going over the Fiscal Cliff Could Generate $219 Million for Wisconsin Treasury
Among the many potential effects of the “fiscal cliff” is a surprising outcome that you probably haven’t heard about – restoring the state estate tax. Because of changes in federal law enacted in 2001, Wisconsin’s estate tax ended in 2008, although the state law authorizing it remains on the books. If Congress and the President don’t reach an agreement by the end of the year, the federal estate tax will increase on January 1, 2013, and the state estate tax will resume.
The Legislative Fiscal Bureau estimates that resumption of the Wisconsin estate tax would generate $219 million during the 2013-15 biennium. That wouldn’t be an unanticipated windfall because the Walker Administration’s calculations that the state has little or no structural deficit have been premised on the assumption that Wisconsin will be collecting estate tax revenue in 2013-15. That strikes me as ironic because Governor Walker will probably oppose resumption of the tax, if a federal budget compromise doesn’t keep it from happening. Read more
As part of the fiscal cliff, deep cuts in federal programs are scheduled to go into effect at the end of the year. These cuts, collectively known as the sequester, could cause Wisconsin to shed thousands of jobs and could have very detrimental effects on the health of our communities and the state’s public education system.
The sequester reduces federal spending by $1.2 trillion over the next nine years, with the amount split equally between defense and non-defense programs. Next year, these across-the-board cuts will result in an 8% cut in most affected non-defense spending. A report by the Senate Appropriations Committee Majority Staff warns that the sequester would “have destructive impacts on the whole array of federal activities that promote and protect the middle class in this country – everything from education to job training, medical research, child care, worker safety, food safety, national parks, border security and safe air travel. Read more
More than 155,000 working families in Wisconsin will pay more in taxes in 2013, unless President Obama and Congressional Republicans can agree to extend tax credits that are set to shrink at the end of the year. Nearly 320,000 Wisconsin children live in families that would be negatively affected if the expanded credits are allowed to roll back as part of the events surrounding the fiscal cliff.
President Obama wants to maintain recent enhancements to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), both of which support work and reduce child poverty. Congressional Republicans favor letting the expanded versions of the credits expire, which would result in a tax hike on working families with children.
Reducing the credits would increase poverty in Wisconsin and hurt the state’s economy. These credits currently lift 70,000 children in Wisconsin out of poverty and reduce taxes for Wisconsin families by a billion dollars each year, according to the Center on Budget and Policy Priorities (CBPP). Read more
A Tax Break for the Heirs of the Very Biggest Estates: What’s at Stake for Wisconsin in the Fiscal Cliff
An especially generous version of a tax break for the heirs of the very biggest estates is slated to expire at the end of the year, as part of the combination of events known as the fiscal cliff. Congressional Republicans favor reinstating the lavish estate tax break, initiated in 2010, which lets couples pass on $10 million to their heirs without paying any taxes; single people may pass on $5 million tax free. President Obama advocates letting the estate tax break return to the 2009 level, which lets couples pass on “only” $7 million before paying any estate taxes; single people may pass on $3.5 million untaxed. Under President Obama’s plan, 99.7% of estates would be exempt from the estate tax.
Only 40 of the very biggest estates in Wisconsin each year would benefit from the more generous Republican plan, compared to the President’s position. Put another way, only the richest 1 out of every 1,000 Wisconsin estates would benefit from the additional tax break proposed by Congressional Republicans. Read more
Unemployment Benefits End for Long-Time Unemployed: What’s at Stake for Wisconsin in the Fiscal Cliff
At the end of the year federal unemployment benefits come to an abrupt end, ending all unemployment benefits beyond the 26 weeks of benefits provided by the state. This change, which is part of the fiscal cliff, will make it harder for jobless workers in Wisconsin to make ends meet and could slow the Wisconsin economy.
Right now, jobless workers in Wisconsin have access to 37 weeks of federal unemployment benefits. About 44,000 Wisconsin workers who haven’t been able to find a job currently receive federal unemployment benefits, pumping $42 million a month into the Wisconsin economy. Those out-of-work workers will see their benefits suddenly terminated.
Nationally, more than two million jobless workers could lose their federal unemployment benefits at the end of the month. In addition, nearly one million people who would otherwise become eligible during the first three months of 2013 may not be able to receive any EUC benefits if this lifeline for the long-term unemployed is not extended. The failure to extend it would remove close to $30 billion of income from the pockets of jobless workers next year, which would be a huge hit for local communities and the national economy. Read more
Day 3 of a series
More than three million Wisconsin workers would pay a total of two billion dollars more in federal taxes next year unless the payroll tax cut, which is scheduled to expire at the end of the year as part of the fiscal cliff, is extended. A typical Wisconsin worker will pay $546 more in payroll taxes next year if the tax cut is not extended.
The payroll tax cut temporarily reduced the taxes that workers pay into the Social Security trust fund from 6.2% of their income to 4.2%. Money from the general treasury was then shifted to the Social Security trust fund to make up for the loss in tax revenue.
Until recent days, the expiring payroll tax cut has received little attention in the fiscal cliff discussions. That may be starting to change. President Obama’s most recent offer to House Republicans in negotiations to avoid the fiscal cliff called for extending the payroll tax cut or a similar tax cut, and Congressional support is rising. Read more
Day 2 of a series
One of the biggest components of the fiscal cliff is the year-end expiration of the Bush income tax cuts. In theory, an agreement to extend the Bush income tax cuts for middle-class families should be the easiest part of the fiscal cliff negotiations, since both President Obama and Republican members of the House of Representatives say they want to avoid an income tax hike on middle class families. But GOP members of the House are refusing to agree to extend the tax cuts for middle class families unless the tax cuts are also extended for the very biggest earners.
How would the competing income tax proposals affect Wisconsin residents? Under President Obama’s approach to extending the expiring tax cuts, which preserves tax cuts on income under $250,000, the top 1% of earners in Wisconsin would still get very sizable tax cuts in 2013 – 11% of the total benefit, as shown in the chart below. Read more