Federal Budget & Tax

Federal Budget & Tax: News Blog Background

Friday, January 28, 2005

Sen. Nelson to Cosponsor Estate Tax Repeal Legislation

According to the news source Congress Daily, advocates of estate tax repeal have enlisted the help of Senator Bill Nelson (D-FL), to provide support for their stance on this issue. Nelson will be the Democratic cosponser of a bill aimed at repeal, along with Senator Kyl (R-AZ), who has sponsored pro-repeal measures in the past.

The estate tax is a progressive tax that affects the wealthiest 2 percent of the population in America. It is currently scheduled to phase out through 2009, not exist in 2010, and then return in 2011. The estate tax provides an important source of revenue; if repealed the government would lose almost a trillion dollars in revenue over the next twenty years.

Bill Nelson is one of seven democratic Senators who has voted in favor of repeal in the past. The others are Baucus (MT), Bayh (IN), Landrieu (LA), Lincoln (AR), Ben Nelson (NE), and Wyden (OR). While these Senators did vote for repeal in 2001, the fiscal health of our country is different today than it was four years ago. The CBO recently projected the budget deficit in 2005 to be around $427 billion. Our economy is not conducive right now to policies that will gut revenue even more.

The above-listed Senators who have voted for repeal in the past need to recognize that our economy cannot handle an even larger squeeze on the budget right now. Voting to cut that much federal revenue annually would be irresponsible in a time when we are already expecting to see very limited domestic discretionary spending, as well as the extension of Bush's first term tax cuts. Repealing the estate tax would further cut taxes for the wealthiest individuals in this country, and make it more difficult for the government to be able to fully fund social programs that a large percentage of the population rely on to get by.

Posted by Becky Lewis, 04:38:28 PM

Thursday, January 27, 2005

Chile's Pension Plan

President Bush has stated in the past that the United States could "take some lessons from Chile, particularly when it comes to how to run our pension plans." Chile's retirement insurance program has gotten attention lately because the reforms enacted in the country a little over twenty years ago share many similarities with reform plans being discussed by U.S. Republican leaders today.

The major similarity is that Chilean workers pay a percentage (roughly 10 percent) of their salaries into private investment accounts. This system was put in place with the thought that these accounts would spur economic growth as well as provide monthly pension benefits larger than what the traditional system could offer. Two major differences, however, include the fact that Chile's private pension system is not currently optional, and also, according to this article in the New York Times, the country "was careful before it started its private system to accumulate several years of budget surpluses." The U.S., unlike Chile, is considering a social security reform in the midst of multiple consecutive years of budget deficits.

The New York Times article provides a good description of how Chileans have fared under this system. As the first group of workers to depend on this system begin to retire, it is becoming evident that benefits are falling short of what was originally advertised when the program was put into place, and will unfortunately plunge many once-comfortable retirees into poverty. Not only that, but the Chilean government has had to continue diverting billions of dollars into a safety net for workers whose monthly contributions were not large enough to ensure a minimum pension. While the Chilean and U.S. economies and workforces are different and thus will benefit differently with private pension plans, it helps to look at the problems Chileans are experiencing with their private accounts if we are going to be considering enacting similar policies.

Posted by Becky Lewis, 04:34:48 PM

Wednesday, January 26, 2005

The Truth Behind CBO's Ten Year Deficit Projections

In September of 2004 the Congressional Budget Office (CBO) estimated 10 year deficit levels to be $2.3 trillion. Their recent Budget and Economic Outlook shows this 10 year deficit projection improving, as they now predict deficit levels to be $1.4 trillion over the next ten years. These numbers are misleading.

The reason for this improvement is because in their previous report, the CBO included $115 billion per year through 2014 for supplemental defense expenditures in Iraq and Afghanistan. In their current estimates, the CBO includes no supplemental funding for Iraq and Afghanistan. This discrepancy exists because CBO is required by law to base their projections only on current law. The CBO report acknowledges this and includes adjustments to their previous projections in order to have a fair baseline to compare the ten year deficit. When this adjustment is made, CBO reports that ten year deficit levels will actually increase by half a trillion dollars, or 0.3 percent of GDP; three-quarters of this increase is due to legislation surrounding the extension of tax cuts.

Similarly, CBO projections fail to take into account some costly policies that are widely expected to become law in the near future. These include:

reforming the Alternative Minimum Tax;

extending expiring tax cuts; and

creating private accounts in social security.

Given the potential costs of the policy issues listed above, as well as projected increases in health care costs, it would be foolish and irresponsible for policymakers to think they can sufficiently meet those priorities while attempting to make Bush's tax cuts permanent. To do so would explode deficits far beyond any projections we are seeing today.

For good articles on the Budget and Economic Outlook released yesterday, read this article in the Washington Post and this article from Bloomberg news. To read more about why CBO projections tend to underestimate the real picture of the deficit read this analysis by economist John Irons. Written last fall, Dr. Irons explains his take on why ten year budget deficits will most likely be much greater than any predictions from the CBO.

Posted by Becky Lewis, 03:22:19 PM

Tuesday, January 25, 2005

Watcher: January 25th, 2005
Federal Budget

Posted by Becky Lewis, 10:26:33 AM

Monday, January 24, 2005

Tax Issues to be Addressed in Congressional Agenda

BNA News Services reported today that a package of ten bills reflecting the Senate Republican agenda will most likely include a measure aimed at either repealing or reforming the estate tax. The measure is expected to be sponsored by Senator Kyl (R-AZ), who sponsored estate tax legislation in the the 108th Congress. His last measure aimed to both make estate tax repeal permanent, as well as accelerate full repeal to 2005 (full repeal is currently scheduled to take place for one year in 2010). The estate tax, which only affects the wealthiest 2 percent of the population, is the most progressive tax in place in America.

Also on the Senate Republican agenda is making the 2001 and 2003 tax cuts permanent. Some of the tax cuts are scheduled to expire in the upcoming years, and GOP leaders hope to make those cuts permanent during the 109th Congress. Chuck Collins, cofounder of the group Responsible Wealth, noted the "unseemliness of voting for tax cuts for the rich during a war." Lawmakers should note -- as they vote on provisions to spend more in both Iraq and Afghanistan -- whether or not this country can really afford to be making tax cuts permanent while both fighting a war and contemplating an expensive overhaul of Social Security.

Posted by Becky Lewis, 10:38:55 AM

Thursday, January 20, 2005

Divisions in Social Security Reform Widen
The lack of a proposal from the White House on the President's specific plans for Social Security reform has continued to raise doubts and widen the divide of consensus on the proper way to approach this issues. In yesterday's Washington Post, House Ways and Mean Committee Chairman Bill Thomas (R-CA) was quoted as saying the President's plan would be a "dead horse" upon arrival in Congress and that it "cannot, given the politics of the [Congress]" win passage.

Representative Thomas is one of the most powerful Republicans concerning tax policy and will have a huge influence on the fate of Bush's domestic agenda in his second term - particularly Social Security reform.

Also recently released, a new analysis by Center for American Progress/The Century Foundation senior fellow Ruy Teixeira on recent polls concerning Social Security. It seems not only has Bush lost Congress, but he continues to be unable to sell the American public on his policies.

Posted by Adam Hughes, 01:55:44 PM

Tuesday, January 18, 2005

Washington Post Series On Social Security

In an editorial yesterday, the Washington Post proclaimed that it plans to offer an occasional series of discussions on social security, in light of the recent onslaught of attention being devoted to the issue. The first article in the series can be read here.

In the series on social security, the Washington Post hopes to explore many questions, including the following: What is the role of Social Security in today's retirement system? What is the size of the shortfall? What are the alternatives for addressing it? What are the risks and potential benefits of private accounts? How have they worked in other countries? Check the Post in the upcoming weeks for in depth coverage on the subject.

Columnist Paul Krugman of the New York Times also continues to regularly discuss his feelings on social security reform in frequent op-eds. The latest can be read here.

Posted by Becky Lewis, 01:00:59 PM

Friday, January 14, 2005

Britain's Go At Pension Privatization

With all of this talk about social security, many analysts and politicians are looking to examples from abroad to either back their proposals or disprove others' proposals.

One particular case getting a lot of attention is Great Britain. In her American Prospect article, "A Bloody Mess," author Norma Cohen discusses Britian's go at pension privatization approximately twenty years ago. In fact, it appears that there are basic similarities between what Britain enacted, and what President Bush may propose in the very near future; that is, a cut in guarenteed benefits with the option for beneficiaries to make up for those cuts by earning high returns on private accounts.

Check out the article to see why there is now growing consensus in Britain that the privatization policy must be reversed. Paul Krugman also discusses the issue in a column today titled "The British Invasion."

Posted by Becky Lewis, 01:55:12 PM

Wednesday, January 12, 2005

Watcher: January 11th, 2005
Federal Budget

Posted by Becky Lewis, 10:50:02 AM

Guide to the Federal Budget

The Coalition on Human Needs has recently released a brief and informative report that discusses both the budget process what is ahead for us in 2005. This report is helpful for those who want to brush up on their understanding of the budget process, government actions, and why we are running a deficit.

Check it out here.

Posted by Becky Lewis, 10:43:40 AM

Tuesday, January 11, 2005

Who Benefits From Tax Cuts?

Bush's first term was marked by the passage of excessive tax cuts. This year alone, the cost of those tax cuts will be $215 billion. Roughly $47 billion of that amount will go to the top 1 percent, or in other words a group of people whose average income is about $1 million per year. These tax cuts are not paid for, and are significantly more costly than the war in Iraq, Medicare drug benefits, and the projected social security shortfall.

It is no secret that our deficit and national debt are disturbingly high and not on track to be responsibly repaired any time soon. Adding to the deficit burden is the cost of these excessive tax cuts. How will the administration choose to deal with this? When the President releases his budget in early February, we may very likely see that his solution will be to freeze or significantly cut non-defense discretionary spending. Another way to view non-defense disretionary spending is to think of it as services for people paid for by the federal government. This means education, medicaid, medicare, child care, environmental protection, veterans' health care, housing and many other programs.

The administration and Congress seem to think that taking away from these programs to give $47 billion back to the rich this year is how to solve our fiscal problems by "growing the economy." Taking away necessary and vital programs used and depended upon by millions and millions of people in order to give a sizeable chunk of that money to the rich will not grow anything except the size of the gap between the rich and the poor in this country.

Check out this link for an informative editorial in today's Washington Post.

Posted by Becky Lewis, 12:06:17 PM

Monday, January 10, 2005

Job Growth Numbers

Jobs growth data for December 2004 was recently released. Below are the facts. This data comes from the Economic Policy Institute's JobWatch web feature. Click here for background documents.

Job creation failed to meet the administration's projections in 15 of the past 18 months.

Job growth over the last 18 months has fallen short by 1,703,000. This number is more than one-third less than the number of jobs the administration said would be created, even without the tax cuts.

The administration expected the tax cuts to generate 1.4 million jobs. This did not happen. The administration expected a little over 5.5 million jobs to be created between June 2003 and December 2004. In reality, only 2.4 million jobs were created.

Job growth in December of 2004 fell almost 150,000 jobs short of projected estimates for that month alone.

In other jobs related news, an article in yesterday's New York Times discusses the fact that even though overall unemployment levels may have dropped, the number of workers who have been jobless for over a period of 6 months has remained very high. Six months is the point at which unemployment benefits run out for people, and as of November 2004, one in five unemployed workers were jobless for more than 6 months. A total of 3.6 million workers ran out of unemployment insurance last year, and according to the Times, this statistic is higher than it has been in at least three decades. President Bush and prominent members of Congress seem to believe that tax cuts will create more jobs. The numbers, however, do not appear to be lining up.

Posted by Becky Lewis, 06:06:08 PM

CBO's Monthly Budget Review

On friday the Congressional Budget Office released their Monthly Budget Review, which includes key economic and budget figures from the first three months of fiscal year 2005.

The report estimates that total federal outlays in the first quarter grew by close to 6 percent, which is similar when compared with first quarter growth in 2004. Both Medicare and Defense outlays, however, increased approximately 9 percent relative to levels recorded for this period last year.

The government recorded a deficit of $114 billion for the first quarter, which is $16 billion lower than the deficit recorded for this period last year. Notably, spending is up for agricultural price supports, disaster assistance, and education programs. Outlays for both unemployment benefits and temporary fiscal assistance to states, however, have dropped significantly.

Posted by Becky Lewis, 12:00:21 PM

Friday, January 07, 2005

President Names Members of Citizen's Tax Panel
This morning President Bush announced nine members to his long-awaited tax panel that will recommend changes and simplifications to the U.S. tax system, picking former Senators Connie Mack and John Breaux to lead the panel. The president has highlighted tax reform as one of his top priorities in his second term.

Officially titled the "President's Advisory Panel on Federal Tax Reform," the other members of the panel include:
* former Representative Bill Frenzel, a Minnesota Republican and visiting scholar to the Brookings Institution;
* former Internal Revenue Service Commissioner Charles Rossotti;
* Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. Inc.;
* University of Southern California Professor Elizabeth Garrett;
* former Federal Trade Commission Chairman Timothy Muris;
* Stanford University Economics Professor Edward Lazear;
* MIT professor James Poterba.

The panel will be charged with investigating changes and simplification to the tax code. Bush has given the panel until July 31st to report its recommendations. Click here and here to read more about the announcement of the panel members.

Posted by Adam Hughes, 12:02:54 PM

Thursday, January 06, 2005

Insider Info on the Push for Social Security Reform

Reporters at the Wall Street Journal and CongressDaily have obtained a memo written by Peter Wehner -- a senior official in the Bush administration. Besides stating that social security reform would be "one of the most significant conservative governing achievements ever," the memo notes that not only is the creation of private accounts key to reform, but benefits cuts would be key as well. The latter point is not one that the President has publicly said would accompany any social security reforms, although this memo makes it clear that it is on the minds of many.

See this New York Times article to read about differing views on social security reform.

Click here to read the email mentioned above

Posted by Becky Lewis, 12:59:14 PM

New Appropriations Chairs

As the 109th Congress gets settled on Capitol Hill this week, many Senate and House committee members have changed. Notably, both the Senate and House Approriations Committees will be chaired by new Congressmen.

Thad Cochran (R-MS) is taking over as Chair of the Senate Appropriations Committee for Senator Ted Stevens (R-AK). Jerry Lewis (R-CA) was chosen by Republicans yesterday to chair the House Appropriations Committee. He is taking over for Representative Bill Young (R-FL).

Lewis has said that one of his top priorities will be to get the annual spending bills passed "on time and under budget." Check out this article for more information.

An immediate priority for these new chairmen will be to provide emergency supplemental funding to tsunami victims. It is expected right now that $350 million will be set aside for tsunami aid. The Committees may also soon be engaged in asking for increased emergency supplemental funding for operations in Iraq and Afghanistan. There is current speculation that Bush will ask for $80 billion to be appropriated in funding.

Posted by Becky Lewis, 10:47:50 AM

Wednesday, January 05, 2005

Option 2 "Makes Sense" to Frist But Risks Cuts In Benefits

In 2001 Bush appointed a commission to look at social security, and this commission came up with three proposals. One of the proposals, called Option 2, is currently receiving a lot of attention on Capitol Hill, with Bill Frist recently stating that "[It's] on the table, and it makes sense to me." Option 2 would link future social security benefits to increases in inflation over a worker's lifetime, rather than wages.

One of the major problems with this proposal is that in our economy wages rise faster than inflation. According to this Washington Post article, the new benefits formula would "stunt the growth of benefits, slowly at first but more quickly by the middle of the century." While the proposal would work towards solving the problem of social security's long term deficit, the program does not show signs of reaching the level of "crisis" that many in the government are claiming. In fact, as Krugman points out in a New York Times column, if these proposals are put in place it "will do nothing about the real fiscal threat and will instead dismantle Social Security, a program that is in much better financial shape than the rest of the federal government."

These overhauls would also come with a stinging cost to future retirees. The average middle class worker retiring in 2022 would see a benefits cut of 9.9 percent, while in 2042 benefits would fall by more than a quarter. These cuts would be detrimental considering that over the past 60+ years the social security program has done more to stave off poverty than any other program.

In a recently released report, the Center on Budget and Policy Priorites highlighted the fact that other policies embraced by this administration will end up costing the country a lot more than the social security shortfall in the future, particularly the cost of Bush's tax cuts and Medicare prescription drug benefits. The report can be found here.

Posted by Becky Lewis, 10:33:34 AM

Tuesday, January 04, 2005

Nuts and Bolts of the Declining Dollar

Over the past two years the dollar has lost almost 23% against the euro. One year ago, at the beginning of 2004, $1.25 could buy one euro. A year later, a euro is worth $1.37, nearly 12 cents more. The dollar has declined mainly because private investors are, according to this Economist article, "less eager to finance America’s huge current-account deficit." The overall 2004 deficit was $413 billion, and in the third quarter of 2004 it reached a record of $165 billion, or 5.6 percent of GDP.

A further decline in the dollar will most likely cause interest rates to soar in the United States. The administration needs to act to prevent this by reining in the trade and budget deficits.

For more information on the dollar, check out The Federal Reserve, The Institute For International Economics, and this issue brief put out by the Economic Policy Institute.

Posted by Becky Lewis, 10:33:04 AM

Monday, January 03, 2005

Senator Graham's Perspective On Social Security

Retiring Senator Bob Graham has a valid reason for being concerned about social security reform: One dollar out of every 14 dollars in benefits paid by the Social Security Administration goes to a resident of the state he has served for the past eighteen years -- Florida. In a recent article written by Senator Graham he outlines the necessity of a social security safety net, and discusses many of the problems that come with President Bush's ideas for reform, including added risk for people collecting benefits, the embellishment of the crisis facing the system, and the fact that "our grandchilden" could be paying for this overhaul further down the road.

To read the article, titled "Save Social Security From the White House," click here.

Posted by Becky Lewis, 06:15:26 PM

Manipulating Numbers

In the months leading up to the November elections, President Bush stated numerous times that if reelected, he would cut the budget deficit in half by 2009. This announcement came in a year that saw a record high deficit of 413 billion, not to mention continued tax cuts and an increasingly expensive war in Iraq.

Many budget and economic analysts have speculated as to how Bush plans to cut the deficit in half, all while continuing to fight a war, pushing to make tax cuts permanent, and pursuing expensive social security reform. This excellent article in yesterday's New York Times discusses the fact that Bush's plan to cut the deficit in half may rely more upon the manipulation of numbers and less upon concrete, responsible fiscal policies.

Posted by Becky Lewis, 02:11:15 PM

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